Bounce Back Loan Fraud
The impact on the economy of Covid-19 has been detrimental and far reaching. With the UK being officially in recession for the first time in 11 years, the Government has implemented a number of packages in order to help businesses survive these tough times, one of these is the Bounce Back Loan Scheme.
Overview
- This article covers:
- What is a Bounce Back Loan?
- Why do companies require a Bounce Back Loan?
- What are the requirements to obtain a Bounce Back Loan?
- Why is the scheme at risk?
- What types of fraud is the scheme vulnerable to?
- How can that risk be minimised?
Summary
- Fraudsters have been using the Bounce Back Loan initiatives to defraud both the Government and other businesses.
- It is hard to ‘police’ these applications due to the speed at which the scheme was set up and its lack of transparency.
- Vigilance is key in defeating these fraudsters who seek to make a gain from others’ hardship.
What is a Bounce Back Loan?
One initiative brought in under the Government’s COVID-19 response, is the Bounce Back Loan Scheme (“BBLS”). The BBLS is supported by the UK Government and allows eligible businesses to borrow between £2,000 and 25% of their turnover. The maximum loan is £50,000. There will be no fees or interest for the first 12 months and after 12 months the interest rate will be 2.5% a year.
- UK based;
- trading before 1 March 2020; and
- adversely impacted by COVID-19.
In addition, borrowers are required to declare that the business:
and the result is that businesses are effectively
self-certifying. The limited due diligence means that there are unscrupulous individuals out there who will
seek to take advantage of this new scheme.
- Has not have received a loan under the Coronavirus Business Interruption Loan Scheme (CBIL), unless you are refinancing it with a BBL;
- Was not in difficulty as at the 31 December 2019 (as further checks would apply);
- Is going to use the BBL to support trading or commercial activity in the UK (it is not for personal use and must not be used as such);
- Is solvent at the time of submitting their loan application; and
- More than 50% of the income is derived from trading activity.
BBL Fraud
Unfortunately, there are any number of ways in which the BBLS can be exploited and these are just a few examples of the frauds which have been attempted (and some succeeded) so far:
- Will allow the public and companies to check the creditworthiness of customers and suppliers.
- May have the effect of giving the public confidence in the bailouts.
- Enable the public, investors, companies, law enforcement and credit reference agencies to check that the loans are going to credit worthy and respectable clients, and to pick up any potential inconsistencies such as dormant companies springing into life or new directors being appointed.
Minimising the risk
On the 16 June 2020 the Fraud Advisory Panel along with Spotlight on Corruption and Transparency International wrote to the Chancellor to request that the Government publish the names of all companies receiving BBLs and CBILs to prevent fraud. Put simply, transparency is key to fighting the fraudsters.
By failing to publish details of the companies receiving these loans it provides an opportunity to defraud. Transparency of recipients of these loans will assist in the following ways:
Comment
In any time of crisis, there are those who will seek to take advantage of schemes that are meant to help businesses and individuals in need. We can only hope that vigilance is maintained, and transparency will certainly assist that goal.
Should you require assistance in understanding issues arising from the Bounce Back Loan scheme, please do not hesitate to get in touch at hello@tenetlaw.co.uk.
