Originally written by Timothy Adler on Small Business
>See also: HSBC will not accept any more Bounce Back Loan applications
According to the Times, government officials have already contacted debt collection agencies including Arrow Global to see whether they would chase unpaid Bounce Back Loans. Only when the agency has exhausted chasing repayment would the bank then claim on the 100-per-cent state guarantee.
Lenders say they would have to hire hundreds of staff and build dedicated loan recovery call centres to cope with the volume of bad debts.
Bounce Back Loans are due to start being repaid in May.
Of course, high street lenders have outsourced bad debt collection for years. The collection agency chases the bad loan on a contingency basis, keeping a percentage of any loan repaid as a fee. A large percentage of businesses owing banks money settle immediately once a collection agency is brought in. Or they agree a repayment schedule. Or the small business makes an offer – this if often the case if the debtor is about to go out of business.
Only once the collection agency has gone to court and won an enforcement order can officers enter business premises and seize assets – but it is very much seen as a last resort.
However, when it comes to Bounce Back Loans and bad debts, banks will be wary of bad press. Personal and business accounts are often muddied with microbusinesses. And they will not want a repeat of the notorious Royal Bank of Scotland Global Restructuring Group, which was pilloried for strong-arming small business clients into selling up and snapping up their businesses.
Last month, chancellor Rishi Sunak made it easier for the 1.3m small businesses that have taken out Bounce Back Loan debt, extending the repayment term from six to 10 years, allowing them to switch to interest only or pause entirely for six months.
According to the Business Banking Resolution Service (BBRS), just over 40 per cent of businesses which have taken out government-guaranteed emergency coronavirus loans have no intention of repaying them — either because they do not expect to repay them, or because they do not believe that the government will pursue the debt.
Small businesses should ‘only repay coronavirus debt once back in profit’