UK Treasury says it is the responsibility of lenders, not government, to collect debts under COVID-related loan programs
The UK the four main government business support programs, which include the Coronavirus Business Interruption Loan Program (CBILS) and the Bounce Back loan program (BBLS), have provided around £ 65.5 billion (around $ 87.2 billion) to UK-based companies as of November 16, 2020, according to data provided by the British Business Bank.
Now that the money has been loaned to all of these businesses, there is concern that many of these outstanding loans will not be paid back on time or at all.
A report by the Recapitalization Group, auditing firm Big Four EY and lobby group TheCityUK (as of June 2020) estimated that around £ 36bn in government-backed business loans could become ‘toxic’ (unlikely to be recovered) by March 2021.
TheCityUK, EY and several other agencies had recommended that the UK Recovery Corporation try to turn risky debt into manageable payment options, like tax obligations.
In response to this question, the Treasury said the government had made it clear that the private sector should be the first port of call for any business or enterprise interested in refinancing or restructuring their outstanding debt.
The Treasury also noted that the UK government has welcomed TheCityUK’s recapitalization panel report on supporting businesses during COVID-related economic recovery as a significant contribution to ongoing discussions on how local businesses can be effectively supported. .
The Treasury added that although they have considered their proposals, as well as other suggestions in the report such as contingent tax liabilities and student loan type structures, they still believe that accredited lenders, not the UK government , are well placed to support borrowers repaying government guaranteed loans.
The Treasury further noted that the government realizes that the industry brings a lot of creativity and insight to the discussions, which is why it looks forward to hearing more ideas and recommendations, led by the UK private sector. , to recapitalize local businesses and businesses. .
As reported Per Peer2Peer Finance News, Mel Stride MP, Chairman of the Treasury Committee, said the Treasury response confirms that accredited or approved lenders, not the government, should try to collect outstanding government guaranteed loans.
Stride also stressed that the committee expressed concerns about the lack of capacity and willingness of UK private industry to come forward and offer viable solutions to deal with corporate debt.
He also mentioned that there is always a possibility that corporate debt could lead to more economic problems, which could lead to serious problems in the long run.
Last month, HM Treasury and the local UK Finance trade agency began work on a standardized framework to address loan collection issues from BBLS borrowers.
UK think tank Onward suggested in September 2020 that the government should consider letting local businesses repay state-guaranteed COVID-related loans after they manage to become profitable.