Transport sector could cost Treasury up to £1.2bn in Bounce Back Loan Scheme defaults, researchers warn

The transport industry could cost the Treasury £1.2bn in Covid-19 loan defaults, according to research by Business Rescue Expert.

The research looked at the rate at which small businesses have used the government’s Bounce Back Loan Scheme (BBLS) since its launch in May 2020.

As the first repayments under the BBLS scheme now fall due, Business Rescue Expert found that overall the BBLS could cost the Treasury £27bn in loans that will not be repaid, with the transport and warehousing sector’s defaults amounting, in a worst case scenario, to £1.2bn.

The study found that the sector is the eighth highest borrowing industry overall, obtaining a collective £2bn through the BBLS, amounting to 77,920 loans.

This compares to the retail, construction and hospitality sectors, where the total amounts loaned were £7.7bn, £7bn and £4bn respectively.

The transport sector also had the third lowest borrowing per individual loan, borrowing £25,667 per loan, compared to £35, 530 for retail, £35,504 for hospitality, £35,080 for real estate and £29,310 for construction.

Business Rescue Expert also projected the best, median and worst case repayment scenarios across 13 industry sectors, using data from the Office of Budget Responsibility’s Fiscal Sustainability Report, the latest BEIS annual report and the National Audit Office’s (NAO)’s regularly updated Covid-19 cost tracker, alongside a lending breakdown compiled by the British Business Bank.

Read more

• Government launches fast track loan scheme to help firms hit by impact of COVID-19
• Sixteen percent of operators could cease trading by July, RHA survey reveals
• RHA welcomes £10bn government support pledge

The scenarios set out a best-case (with a 15% BBLS default rate); a median case (40% default rate) and a worst-case default scenario (60% default rate).

It estimated that the transport and warehousing sector, in a best case scenario, could default on a total of £300m of loans. In a median case scenario this would amount to £800m and in a worst case scenario this could top £1.2bn.

In comparison retail, construction and hospitality’s best case scenarios were estimated at £1.16bn, £1.05bn and £600m respectively, whilst their worst case scenarios came in at £4.6bn, £4.2bn and £2.4bn respectively.

Chris Horner, Business Rescue Expert insolvency director, warned businesses to prepare for their first repayments under the BBL scheme.

He said: “The figures illustrate not only the size of the support measures that were available to businesses to borrow during the pandemic lockdown but also the potential cost if they can’t be repaid.

“In the first quarter of this year alone, over 42% of the liquidation cases we’ve handled had taken out a BBLS, and the average amount borrowed averaged £37,500 per company.

“As the first loan payments for the BBLS become due, businesses will have to seriously look at their ability to pay and their calculations might have been affected by not being able to reopen earlier than this month at best.

“Businesses that have topped-up their initial BBLS loan will also find out that not only are they unable to defer these payments, but they’ll come out at the same time as their original loan repayments – an unwelcome and expensive surprise.

“The most important thing we can is to remind business owners and directors that there are options available for them. If they get professional advice and quickly then they could yet find a way out of a seemingly impossibly tight situation. Ignoring it is only guaranteed to add to their problems.”