On the first day of the BBLS, last Monday, £2 billion worth of loans were handed out — over by Lloyds — and by early Thursday last week, Barclays and RBS alone had approved a combined £3.7 billion . This high uptake, along with looser restrictions on loans, however, has created concerns that a wave of businesses will end up defaulting, with tax and advisory firm Blick Rothenberg saying at least one-fifth of loans are unlikely to be repaid, per the FT.
The BBLS has a few critical differences from its fellow government relief loan scheme, the Coronavirus Business Interruption Loan Scheme , that could result in a high default rate. The primary difference between the two programs is that BBLS loans are smaller — between £2,000 and 25% of the business's turnover, up to a maximum of £50,000 — compared with the £5 million maximum loan allowance under the CBILS.
The prospect of a wave of BBLS defaults likely won't dissuade lenders, as they don't have to shoulder the risk under the scheme. The 100% government guarantee on BBLS loans means that even if a business is completely unable to repay, their bank won't lose any money on the loan. Furthermore, the state pays the 2.5% fixed interest rate on BBLS loans for the first year, not the business that receives the loan, meaning that each BBLS loan will yield at least a year's worth of interest revenue for the lending bank. For these reasons, banks will likely lend through the BBLS voraciously as they only stand to gain, both in the form of interest revenue and in goodwill gained from businesses under stress.