Those who abused the Bounce Back Loan (BBL) Scheme are increasingly being held to account, but experts have said this is merely the tip of the iceberg and questioned the scheme’s design and susceptibility to abuse.
They also urged the Government to strike a balance between penalising clear abuse and not unduly punishing legitimate struggling business owners.
Following news that a Bolton business owner has recently been banned from running a business for over 10 years due to misuse of the BBL scheme, Marcus Wright, managing director at Bolton Business Finance, said: “Unsurprisingly, we are starting to see a number of company directors held to account for abusing the Bounce Back Loan Scheme. However, this is just the tip of the iceberg, with just a few hundred prosecutions to date and over 1.5 million Bounce Back Loans granted. The main issue was the rash way in which the scheme was implemented, with virtually zero underwriting and no liability for the banks.”
The BBL scheme was designed to provide quick financial relief to businesses during the unprecedented times of the COVID-19 pandemic. However, the absence of thorough underwriting and personal liability raised concerns about its potential for abuse. Unlike the Coronavirus Business Interruption Loan Scheme (CBILS) that imposed liability on banks, BBLs were issued with minimal oversight, making them easily susceptible to exploitation.
Necessity versus prudence
Given the pandemic’s rapid and severe economic impact in 2020, the government faced a challenging dilemma. The urgency to support struggling businesses while navigating uncharted territory left little room for extensive vetting and due diligence. The unprecedented nature of the crisis may have constrained the government’s ability to enforce more stringent regulations within the BBL scheme.
The imposition of a 10-year ban from running a business for the Bolton business owner has sparked discussions about whether this punishment was proportionate. Either way, striking a balance between penalising egregious abuse and not unduly punishing legitimate struggling business owners remains a challenge for authorities.
Reaction from the business community
Members of the business community have weighed in on the issue, expressing their opinions and concerns about the abuse of the BBL scheme. Tasnime Rotherham, founder at Very Craftea was not impressed: “It makes me so angry. There I was trying to get any sort of funding to help my business stay afloat while other businesses were ‘furloughing’ staff but actually keeping them on and still getting money from the government. There were businesses that took out Bounce Back Loans that didn’t require them and used them for deposits on houses to rent out. Also, some businesses took the money to pay off investors so they had full control of their business. I’m pretty sure that wasn’t what the loans were intended for. So many small businesses were excluded and genuinely needed help, but unscrupulous businesses were getting away with things and not feeling a shred of guilt.”
Tom Anderson, CEO at Hummingbird Agency, agreed that the number of people who abused the scheme was disheartening, all the more so given recent corporation tax hikes: “During the height of the COVID crisis, it was disheartening to witness numerous businesses and individuals exploiting the loan and furlough system. Some went to the extent of shutting down their companies to sidestep repayments, only to promptly establish a new business the very next day. As someone who has always prioritised ethical business practices, I chose not to tap into the BBL scheme and made it a point to retain all 16 of our dedicated employees without resorting to furlough. Now, as we navigate the aftermath, it’s deeply frustrating to be confronted with rising corporation tax rates. This feels particularly unjust when considering the widespread manipulation and abuse of the relief measures by others in the business community.”
Chris Maslin, Director at Go EO, suggested the PM at the time may not have helped: “There will always be dishonest people, but I imagine having Boris Johnson heading up the country at the time made people feel more comfortable defrauding the country. The handful of most hardcore abusers likely will be brought to justice. There will be many thousands more who broke the rules in a more modest way, and know they did, but who will get away with it. They may have felt it was a victimless crime, but we, the taxpayers, will all be paying for it for years to come.”
John Lamerton, author and lifestyle business owner at Big Ideas… for Small Businesses, agreed: “Small business owners who played by the rules, many of whom would not have survived without a BBL, will be paying the price of this abuse for years to come. After hikes in National Insurance and Corporation Tax, reductions in capital gains and dividend allowances, as well as frozen personal allowances, any small business owner turning a profit will soon discover a taxman-shaped target on their back.”
But others felt the punishment meted out to the Bolton business owner was a little harsh, and urged authorities to focus on professional fraudsters rather than those struggling in a genuine business downturn. Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial, said: “When you hear about people setting up new companies just to apply for a £50k loan on a systemic basis, it seems a little harsh looking at the specifics of this case that a man who has genuinely lost his business is facing such a lengthy ban. We all want to see professional fraudsters go to prison, but even if Mr Nuttal gamed the system to get a larger loan than entitled to, it appears he struggled to keep his business going and it only recently folded. It appears the regulators are, once again, focusing on the low-hanging fruit rather than those they really should be going after.”
Either way, the fallout from the abuse of the Bounce Back Loan Scheme continues, posing crucial questions about its design, the government’s role, and the challenges of ensuring the clear fraudsters are punished severely, while not unduly punishing legitimate struggling businesses. As legal action grows, the full extent of the Bounce Back Loan Scheme abuse and its long-term repercussions on the taxpayer and wider business community will become more apparent.