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Investigation into the Bounce Back Loan Scheme — UK National Audit Office, HC 860 (October 2020)

Filed October 7, 2020 in Uk Nao Covid Schemes; one of 3 filings from this case.

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Court	UK National Audit Office
Filed	2020-10-07

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Report
by the Comptroller
and Auditor General
HM Treasury, Department for Business, Energy &
Industrial Strategy, British Business Bank plc
Investigation into the
Bounce Back Loan Scheme
HC 860 SESSION 2019–2021 7 OCTOBER 2020
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Report by the Comptroller and Auditor General
Ordered by the House of Commons
to be printed on 5 October 2020
This report has been prepared under Section 6 of the
National Audit Act 1983 for presentation to the House of
Commons in accordance with Section 9 of the Act
Gareth Davies
Comptroller and Auditor General
National Audit Office
1 October 2020
HC 860 | £10.00
HM Treasury, Department for Business, Energy &
Industrial Strategy, British Business Bank plc
Investigation into the
Bounce Back Loan Scheme

This investigation looks at government’s Bounce Back
Loan Scheme (the Scheme). It describes the Scheme’s
purpose and how it functions; performance to date; and how
government manages the associated value-for-money risks.
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009205 10/20 NAO
Investigations
We conduct investigations to establish the underlying facts in circumstances
where concerns have been raised with us, or in response to intelligence that
we have gathered through our wider work.

The National Audit Office study team
consisted of:
Sherif Ali, Gregor Botlik, Alex Hovden
and Callum Saunders, under the
direction of Simon Reason.
This report can be found on the
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www.nao.org.uk
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Contents
What this investigation is about 4
Summary 7
Part One
Introduction to the Bounce Back
Loan Scheme 13
Part Two
Scheme performance 24
Part Three
Value-for-money risks 36
Appendix One
Our investigative approach 43
Appendix Two
Regional distribution of loans 45
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4 What this investigation is about Investigation into the Bounce Back Loan Scheme
What this investigation is about
1
This investigation is one of a series of National Audit Office (NAO) reports
considering government’s response to the COVID-19 pandemic. In our first
report we summarised government’s main actions in England across five
areas: health and social care; emergency responses; support for individuals;
support to businesses; and other support schemes, including international aid.1
This investigation focuses on the Bounce Back Loan Scheme (the Scheme),
one specific measure government took to support businesses.
2
On 27 April 2020, the Chancellor of the Exchequer (the Chancellor)
announced the Scheme to provide a “simple, quick, easy solution for those in
need of smaller loans”, aimed at the smaller end of small- and medium‑sized
enterprises (SMEs). The Scheme provides registered and unregistered
businesses with loans of up to £50,000, or a maximum of 25% of annual
turnover, to maintain their financial health during the pandemic. The Scheme
complements two others launched earlier: first, the Coronavirus Business
Interruption Loan Scheme (CBILS), followed by the Coronavirus Large Business
Interruption Loan Scheme (CLBILS), both support SMEs and large businesses to
access loans, overdrafts and other types of finance.
3
The Chancellor initiated the Scheme after businesses criticised CBILS for
the strict eligibility criteria, which created a backlog of applications for the smaller
end of the SME market. The Scheme’s design focused on decreasing the time
between application and payment of loans, which was a concern for businesses.
The Scheme achieved this by removing administrative complexities inherent in
a loan application process. It reduced the complexity, in part, by removing credit
and affordability checks required under the Consumer Credit Act.
1
Comptroller and Auditor General, Overview of the UK government’s response to the COVID-19 pandemic,
Session 2019–2021, HC 366, National Audit Office, May 2020.

Investigation into the Bounce Back Loan Scheme What this investigation is about 5
4
The Scheme launched on 4 May and will be open until 30 November, with
government retaining the right to extend the Scheme. The loans are provided
by commercial lenders (for example, banks, building societies and peer‑to‑peer
lenders) directly to businesses, who are expected to repay the debt in full.
Failure to do so may have a negative impact on their credit score and may
affect their ability to borrow in the future. Government provides lenders a
100% guarantee against the loans (both capital and interest). This means if the
borrower does not repay the loan, government will step in and repay the lender.
The loans have a fixed interest rate of 2.5% and a maximum length of ten years;
in the first year of the loan there are no capital repayments due, and government
pays the interest – making it interest-free for the borrower. HM Treasury data
shows that as of 6 September, the Scheme delivered more than 1.2 million
loans to businesses, totalling £36.9 billion.
5
HM Treasury developed the Scheme with the Department for Business,
Energy & Industrial Strategy (the Department) and the British Business Bank
(the Bank). HM Treasury, in conjunction with the Department, identified the need
and set the Scheme policy and overarching terms, such as the interest rate
and 100% guarantee. HM Treasury is also involved in Scheme implementation
and monitoring. The Bank, established to help finance markets work better for
small businesses across the UK, was involved in the Scheme’s design and is
responsible for its implementation. It delivers the loans under the Scheme via
a network of accredited lenders and it is responsible for the Scheme’s ongoing
administration, in consultation with HM Treasury and the Department. The Bank
is fully owned by the Department, which has a wider policy responsibility for
business and enterprise.
6
The Department’s accounting officer (AO) sought a Ministerial Direction
before the Scheme’s launch. A ministerial direction is requested when an AO,
usually a permanent secretary, believes that a spending proposal breaches any
of the following criteria: regularity; propriety; value for money; or feasibility. Based
on the AO’s assessment there was a strong case for government intervention;
however, the level of risk and uncertainty associated with the Scheme meant a
direction was necessary on all four criteria. On 1 May, the Secretary of State for
Business, following approval from the Chancellor, directed the AO to proceed
with the Scheme. The Bank, which administers the Scheme on behalf of the
Department, raised similar concerns in a Reservation Notice to the Department’s
AO and received a written direction to proceed with the Scheme on 3 May.

6 What this investigation is about Investigation into the Bounce Back Loan Scheme
Scope of the report
7
The report focuses on this Scheme as it is government’s largest and
most risky business loan support scheme. It provides a factual overview of the
government’s actions and covers:
•
how the Scheme was developed, what it aims to achieve and how it is
managed (Part One);
•
the Scheme details and how it performed to date (Part Two); and
•
the main Scheme risks (Part Three).
8
The report does not assess the value for money of the Scheme, as loan
repayments will not start until May 2021 and there is not yet enough information
on the Scheme’s costs and benefits. The report only focuses on the Scheme;
other business loan support schemes such as CBILS and CLBILS are featured
only for comparative purposes and to provide context. The report does not
assess the impact of changes to consumer protection legislation under the
Consumer Credit Act which reduce administrative complexities.
9
On 24 September, the Chancellor announced changes to the Scheme.
The changes relate primarily to loan duration and how borrowers can repay.
According to HM Treasury’s ‘Winter Economy Plan’, the Scheme will now offer
borrowers “more time” and “more flexibility” for loan repayments under its
‘Pay as you Grow’ option. At the time of writing this report, limited details of the
changes were available. We have reflected the high-level announcement in our
descriptions of the Scheme (paragraph 1.5 and Figures 1 and 3), but the effect
of the changes has not been considered further in the report.
10
Both HM Treasury and the Bank collect Scheme performance data.
These two datasets differ in the type of data and from when this was first
collected. Our report draws on both datasets: HM Treasury’s for aggregate
Scheme performance up to 6 September; and the Bank’s for more detailed
analysis of individual loans up to 7 September. As a result, not all figures
in our report reconcile owing to the difference in the timing and content of
the two datasets. More information on the limitations of these data can be
found in our methodology appendix.

Investigation into the Bounce Back Loan Scheme Summary 7
Summary
Key findings
Scheme performance
11
The Department and the Bank expect the Scheme to have lent between
£38 billion to £48 billion by 4 November 2020, substantially more than it initially
expected. The three business loan support schemes have provided around
£55.3 billion in loans between March and September. This is close to the total
lent to small- and medium-sized enterprises (SMEs) in all of 2019 (£57 billion).
HM Treasury data shows that at 6 September, the Scheme had approved more
than 1.2 million loans to businesses, totalling £36.9 billion. By 10 May, the end of
the first week of operation, 268,000 loans totalling £8.4 billion were approved,
increasing to £21.3 billion and 699,000 loans by the end of the first month. When
launched, the Department and the Bank expected Scheme take-up of between
£18 billion and £26 billion (paragraphs 2.2 to 2.4, and Figures 7 and 8).
12
As of 7 September, around 90% of the loans under the Scheme went
to very small (micro) businesses located across the UK. Micro businesses
(turnover below £632,000) received £29.4 billion from 1,039,000 loans.
Sole traders, a legal form that small businesses can take, received £6.4 billion
from 297,000 loans, representing 18% of the total support by value. Most of
those receiving support were also private limited companies (75% of the
total support by value). The geographic distribution of the loans across the
UK is in line with the overall distribution of business. A split by industry shows
that real estate, professional services and support activities received the
largest amount of support from the Scheme – £8.5 billion from 283,000 loans
(paragraphs 2.7 to 2.10 and Figures 10, 11, 12 and 13).

8 Summary Investigation into the Bounce Back Loan Scheme
13
Based on HM Treasury data, lenders approve loans for existing business
customers within 24 to 72 hours but approval times for new customers take
substantially longer. Lenders are expected to approve and make payment of
loans within 24 hours, or in some cases 48 hours if further anti-fraud checks
are required. The approval time applies only to existing business customers.
Neither HM Treasury nor the Bank monitor lenders’ approval time for existing
personal customers or new customers. Feedback from lenders during the design
process indicated that applications by existing personal customers would take
between two and four days to complete if applicants were able to provide the
necessary information. Recent feedback from two large lenders indicates that
existing personal customer processing times may take longer than anticipated
at launch and new customers may take between four and 12 weeks to process.
This is because of the volume of applications, and COVID-19-related operational
constraints. The volume of lending under the schemes exceeded the average
monthly lending activity in pre-COVID-19 times (paragraphs 1.8 and 2.5).
Scheme set-up and administration
14
The Scheme was launched within two weeks of the Chancellor of the
Exchequer (the Chancellor) proposing it to the Department and the Bank,
but without detailed objectives. The Chancellor proposed the Scheme on
21 April, and it was launched 4 May. The Scheme was launched quickly to
address businesses and trade bodies’ concerns that some of the smallest
businesses had acute cash flow issues and were struggling to access finance.
According to a survey conducted by the Association of Chartered Certified
Accountants in mid‑April, one-third of businesses would probably not be able
to access enough cash to last more than two weeks of lockdown. Owing to the
pace of the Scheme’s launch, HM Treasury did not produce a business case;
the Scheme also lacked clear objectives beyond the aim of fast financial support
for smaller SMEs, which makes measuring the Scheme’s success a challenge
(paragraphs 1.2 to 1.4, 1.11 and Figures 5 and 6).
15
The Scheme has less strict eligibility criteria than CBILS and CLBILS, to
improve quick access to finance for smaller SMEs. This increases credit and
fraud related risks. The Scheme facilitates faster lending, removing credit
and affordability checks by banks and allowing businesses to self-certify
their application documents. The application process requires businesses
to confirm they are impacted by COVID-19 and are able to repay the loan.
Lenders are required to conduct anti‑fraud, anti-money laundering and ‘know
your customer’ checks on loan applications. The Bank takes assurance from
lender accreditation due diligence and post-accreditation audits that lenders
comply with the Scheme rules. To help lenders mitigate fraud risks, the Bank
established fraud prevention forums with a wide group of stakeholders to
share best practice and aid implementation of additional fraud measures
(paragraphs 1.6 and 1.7 and Figures 1, 2 and 4).

Investigation into the Bounce Back Loan Scheme Summary 9
16
The Bank was able to have a reporting system in place at launch and it
took about a month to fully operationalise it. The reporting system (the portal)
allows the Bank to collect the data needed to administer guarantees in the
event of borrower default. It was not designed to monitor risks or prevent fraud
in real-time, with lenders performing checks. While the portal was in place at
Scheme launch, automatic reporting was not; this meant lenders had to manually
upload data on individual applications, which was a slow process owing to their
volume. In order to assist with Scheme monitoring, HM Treasury put in place a
database collecting daily reports directly from lenders, but at an aggregate level
only. The Bank implemented automated reporting by mid-June, which allowed
lenders to provide data in bulk. However, the information held on the Bank’s
and HM Treasury’s systems do not reconcile owing to the time and type of data
collected (paragraphs 1.12 to 1.14).
17
The Bank was not able to prevent duplicate applications across lenders
for the first month of the Scheme. The Bank highlighted in its Reservation
Notice that there was not enough time to agree with lenders a methodology to
prevent duplicative applications before launch. The Bank worked with lenders
and counter-fraud groups to develop this methodology and it was implemented
on 2 June, almost one month after the Scheme’s launch. The Bank and the
Department identified, based on a fraud organisation’s estimate, that up to
2.3% of approved applications were duplicates before the solution went live
(paragraphs 1.13 and 3.3 to 3.6).
18
The Bank’s preliminary assessment of the administrative costs of the three
COVID-19 business loan support schemes is £75 million by the end of 2024-25.
The assessment suggests a cost of £20 million for the year ending 2020-21.
This includes the Bank’s own delivery costs, mainly staff, as well as external
advisers and outsourced operations, such as reconciling interest payments.
The cost does not include the Department and HM Treasury’s costs. The Bank
explained to us that many costs, like the outsourced operations or the portal,
are interlinked and allocation between the schemes is difficult. Based on the
Bank’s current cost allocation between the schemes, it estimates the Scheme’s
cost to total £9 million by the end of 2020-21 and £32 million by the end of
2024‑25. The Bank’s estimates are highly likely to change as the level and scope
of activities are uncertain and will only become clearer after May 2021 when
borrowers start repaying loans (paragraphs 2.13 and 2.14).
19
The Department estimates that offering the loans interest-free for the
first year will cost around £1 billion. Under the Scheme terms, government
pays the borrower’s interest costs for the first 12 months directly to the lender.
This payment is a grant and excludes any capital repayments. After the first year,
borrowers will need to make repayments (capital and interest) up to the end of
the loan, in line with their arrangement with their lender. As of September 2020,
the Bank estimates the cost of covering borrowers’ first years’ interest to be
£1,068 million; this will rise as more loans are issued (paragraph 2.15).

10 Summary Investigation into the Bounce Back Loan Scheme
Value-for-money risks
20
Credit risk: The Scheme has a low level of credit and customer checks,
increasing the likelihood of some businesses not being able to repay loans and
therefore leading to taxpayer losses. A credit risk is the risk that an eligible
borrower does not repay a loan. The Scheme relies on businesses self-certifying
application details with limited verification and no credit checks performed by
lenders for existing customers. New customers or existing personal account
customers may generate additional credit and customer checks depending
on the lender’s business processes. The lower level of customer checks
increases the speed of delivery. According to the Department, “the fact
that businesses that were unviable before COVID-19 may be able to access
the Scheme owing to the absence of external credit checks, […], creates
significant risks around value for money, propriety and potentially regularity …”
(paragraphs 1.6, 1.7, and 3.2, and Figure 2).
21
Fraud risk: Government recognises that the decision to provide funds
quickly leaves taxpayers exposed to a significant residual fraud risk, even after
lenders have implemented mitigation strategies. Fraud results from dishonesty
which can be a false representation or a failure to disclose information with
the intention to cause financial gain or loss such as applications by ineligible
businesses. The Bank assessed the Scheme risks before launch, and instructed
PricewaterhouseCoopers LLP to conduct a risk review. The review found that,
while some risks can be mitigated, there remains a “very high” level of residual
fraud risk. Based on feedback from lenders, the adviser summarised the residual
external fraud risk causes as: self-certification; multiple applications; lack of
legitimate business; impersonation; and organised crime. The nature of the
Scheme places the main responsibility for managing fraud risk on the lenders as
part of the loan approval process. To support lenders in managing fraud-related
risks, the Bank established fraud prevention forums with the lenders and a wider
group of stakeholders, to share best practice and aid implementation of additional
fraud measures. From October 2020, the Bank, alongside the Department and
lenders, will utilise the reporting portal (paragraph 16) to provide a monthly fraud
report. This will provide details on: prevented loss; detected loss; errors; and
recoveries. The Cabinet Office’s Government Counter Fraud Function believes
fraud losses are likely to be significantly above the general estimates of public
sector fraud levels of 0.5% to 5%. The fraud risks were also highlighted in, and
contributed to, the Bank’s Reservation Notice and the Department’s request for
a ministerial direction (paragraphs 1.7, 3.3 to 3.6 and Figure 4).

Investigation into the Bounce Back Loan Scheme Summary 11
22
As a result of credit and fraud risks, the Department and the Bank’s
preliminary central estimate is that 35% to 60% of borrowers may default on
the loans but the estimate is highly uncertain. Government’s default estimates at
Scheme launch ranged between 30% and 75%. The latest estimates, including
those including those by the Bank and the Office for Budget Responsibility,
have widened to between 15% and 80% depending on the UK’s economic
performance. According to the Bank, credit and fraud risks are interrelated and
therefore it did not assess them separately. The Department’s 2019-20 annual
report and accounts highlights likely total credit and fraud losses of between
35% and 60%, based on historic losses observed in prior programmes which
most closely resemble the Scheme. Assuming the Scheme lends £43 billion, this
would imply a potential cost to government of £15 billion to £26 billion. However,
actual losses may differ from those forecast and indications of the extent of credit
losses and fraudulent applications will not become apparent until borrowers are
due to start repaying their loans. Loan repayments begin from 4 May 2021 as
government is paying interest on all loans for the first 12 months (paragraph 3.7
and Figure 16).
23
Recovery process: Loans are likely to be written off more quickly than for
other COVID-19 related business loan support schemes, but HM Treasury has not
finalised yet how lenders should collect overdue loan repayments. Lenders are
required to pursue “appropriate recovery processes” in line with their existing
standards under the terms of the guarantee agreement. The Scheme terms give
lenders a 12-month time limit after they have issued a formal demand on the
borrower to pursue outstanding amounts. However, claiming on the government
guarantee is not conditional on having completed the recoveries process
– lenders are able to make a claim on the government guarantee “within a
reasonable time period” following the first formal demand date, or sooner,
if lenders believe “no further payment is likely”. Government provides a 100%
guarantee to lenders owing to the absence of credit checks, but this reduces
the lenders’ incentives to recover money from borrowers. Moreover, the Scheme
does not include actions to recover outstanding debt after the 12-month
time limit, for example by requiring lenders to continue recovery processes
in exchange for a fee. The recovery process has been agreed with lenders
on a principles‑level and HM Treasury expects to agree specific operational
details by winter 2020‑21 (paragraphs 1.15, 1.16, 3.8 and 3.9).

12 Summary Investigation into the Bounce Back Loan Scheme
24
Crowding out: The five largest UK lenders provided the largest share of
loans under the Scheme, increasing their foothold in the SME lending market;
this risks having a negative impact on competition. The Bank’s data shows that
the five largest UK lenders (Barclays, HSBC, Lloyds/Bank of Scotland, NatWest/
RBS and Santander) provided £31.3 billion of loans under the Scheme, while
the remaining 18 lenders were responsible for £3.9 billion. The five largest UK
lenders are responsible for 89% of the value of the loans distributed. The Bank
of England estimates the total SME debt to be £167 billion, with the big banks
accounting for 65% of this lending. The Bank and the Department raised
concerns that the Scheme’s terms are making it uncompetitive for smaller
lenders to compete with incumbents, which in turn has a negative impact on
competition in the SME lending sector. One of the Bank’s key objectives is
to help create a more diverse finance market for smaller businesses, with a
greater choice of options and providers. The Bank is seeking to mitigate this
risk by broadening the number of lenders under the Scheme. The Scheme
had seven accredited lenders at launch and had 23 by 18 September 2020
(paragraphs 2.11, 3.10 to 3.12 and Figure 14).
Concluding remarks
25
Once government decided to support small businesses facing cash flow
problems owing to the pandemic, it moved very quickly to set up a scheme.
It prioritised one aspect of value for money – payment speed – over almost all
others and has been prepared to tolerate a potentially very high level of losses
as a result. These losses can stem from businesses wanting to pay back loans
but finding themselves unable to, through to organised criminals taking out
loans with no intention of ever paying them back. The Scheme achieved its initial
objective of quickly supporting small businesses, but a lack of more detailed
Scheme-specific objectives will make it difficult to measure its ultimate success.
Systems and processes have evolved since the Scheme launch but much hard
work remains over the coming months and years to ensure that the risks to value
for money are minimised. This work must include implementing a robust debt
collection plan with lenders and fraud investigation arrangements. Government
should also take this opportunity to consider now the controls it would put in
place to protect against fraudulent abuse for any future schemes.

Investigation into the Bounce Back Loan Scheme Part One 13
Part One
Introduction to the Bounce Back Loan Scheme
1.1
This part provides a description of the key terms of the Bounce Back
Loan Scheme (the Scheme) in the context of the other COVID-19 loan schemes.
It provides an overview of the roles and responsibilities of the parties involved
in the Scheme, and a timeline of the main events.
Business loan support schemes
1.2 On 11 March 2020, the Chancellor of the Exchequer (the Chancellor)
announced the Coronavirus Business Interruption Loan Scheme (CBILS) in
response to the economic challenges businesses faced as a result of the
COVID-19 outbreak. CBILS launched on 23 March, offering financial support
to small- and medium-sized enterprises (SMEs) across the UK that were losing
revenue and seeing their cashflow disrupted. On 20 April, the Coronavirus
Large Business Interruption Loan Scheme (CLBILS) was launched, targeting
large businesses with turnover beyond the £45 million CBILS threshold
(Figure 1 on pages 14 and 15).
1.3 After CBILS’s launch, businesses and trade bodies raised concerns
that some of the smallest businesses had acute cash flow issues and were
still struggling to access finance. A survey conducted by the Association of
Chartered Certified Accountants and the Corporate Finance Network of 9,000
accountants in mid-April revealed that one-third of businesses “will probably not
be able to access the cash they need to last more than two weeks of lockdown”.
Through CBILS, access to loans below £25,000 was particularly difficult owing
to consumer protection legislation. The Consumer Credit Act demands that
lenders conduct client and affordability checks for borrowers who are not legal
entities; considering the economic uncertainty owing to the pandemic, it is
challenging to assess whether loans are affordable.
1.4 As a result, on 27 April, the Chancellor announced the Scheme. The Scheme
aims to complement the existing business loan support schemes, CBILS and
CLBILS, enabling more businesses, especially sole traders, to access support.
Figure 1 provides a comparison of the key terms of the three schemes.

14 Part One Investigation into the Bounce Back Loan Scheme
Figure 1
COVID-19 business loan support schemes
A comparison of the key terms of the three business loan support schemes
Bounce Back Loan Scheme
Coronavirus Business
Interruption Loan Scheme
Coronavirus Large Business
Interruption Loan Scheme
Launch date
4 May 2020
23 March 2020
20 April 2020
Eligibility
No business size restrictions.
Must not be in a
restricted sector.
Businesses self-certify that
they were not a ‘business in
difficulty’ on 31 Dec 2019;
not bankrupt; in liquidation;
or in a similar situation.
Applicant must be carrying
on business on 1 March 2020.
Maximum turnover
£45 million.
Must not be in a
restricted sector.
Must have a borrowing
proposal that the lender
would consider viable under
normal circumstances.
Minimum turnover
£45 million.
Must not be in a
restricted sector.
Must have a borrowing
proposal that the lender
would consider viable under
normal circumstances.
Use of proceeds
Businesses self-certify that
they will use the loan only
to provide economic benefit
to the business, and not for
personal purposes.
Lenders check that the
loan is for a suitable
business purpose.
Applicants provide a
‘borrowing proposal’ for
which lenders believe
the finance will enable
the business to trade
out of any short-to
medium-term difficulty.
Companies borrowing more
than £50 million will be
subject to further restrictions
on dividend payments, senior
pay and share buy-backs.
Support offered
per company
Up to 25% of turnover or a
maximum loan of £50,000
(minimum of £2,000).
£50,001 to £5 million.
Up to £200 million.
Interest rate
2.5% fixed per annum.1
Government pays first year
of interest.1
Interest rate varies by lender.
Government pays first year
of interest and fees.
Interest rate varies
by lender.
Repayment period
Six years, starting after the
first year; option to extend
to 10 years.1
Up to six years.
Up to three years.
Finance Type
Term loans.
Term loans, overdrafts, invoice
finance, and asset finance.
Term loans, overdrafts, invoice
finance, and asset finance.
Early repayment
Free of charge.
Varies by lender.
Varies by lender.
Government guarantee
100%
80%
80%

Investigation into the Bounce Back Loan Scheme Part One 15
1.5 On 24 September, the Chancellor launched the ‘Winter Economy Plan’, which
included an extension of the Scheme’s end date and term changes. The Scheme
will offer borrowers “more time” and “more flexibility” for loan repayments under
its ‘Pay as you Grow’ option. According to HM Treasury, all borrowers under the
Scheme will be allowed to extend the term of the loan to 10 years, temporarily
move to interest-only payments for a limited time, and take repayment holidays.
The objective of these changes is to reduce the size of the regular repayments
by extending the repayment time. Applications under the Scheme have been
extended from 4 November to 30 November.
1.6 The Scheme has less strict eligibility criteria than CBILS and CLBILS, to
improve access to finance for small businesses. The Scheme facilitates faster
lending by removing credit and affordability checks required under the Consumer
Credit Act and allowing businesses to self-certify their application documents.
As part of an application, businesses are required to confirm they have been
impacted by COVID-19 and that they are able to repay the loan. Lenders are
not required to verify the self-certified details of applicants. As lenders are not
allowed to assess whether customers are able to repay the loans, government
provides a 100% guarantee to the lenders: if the borrower defaults on the loan,
the lender can recover the funds from government through the guarantee.
Figure 1 continued
COVID-19 business loan support schemes
Notes
1
On 24 September, the Chancellor of the Exchequer announced changes to the Bounce Back Loan Scheme
terms, including the end date of the Scheme. Changes also include fl exibility for the borrowers in diffi culty to
take payment holidays, temporarily pay only the interest on the loans, or extend the repayment period.
2
Restricted sectors are banks, building societies, insurance companies, public-sector organisations and
state-funded primary and secondary schools. Lenders may apply additional business sector restrictions
if part of their overall business strategy.
3
Companies can only access one of these schemes.
4
This table is a summary of the scheme terms. Full details can be found here:

https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-
back-loans/

https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/

https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/clbils/
Source: British Business Bank

16 Part One Investigation into the Bounce Back Loan Scheme
1.7
The Scheme allows lenders to verify application details as they “see
fit” but there are no requirements to do so. Lenders may cancel loans if they
have found applicants breach Scheme eligibility criteria; if such a cancellation
occurs, government will not be obliged to make any payments to the lender
in respect of the guarantee. Lenders are required to conduct anti-fraud,
anti‑money laundering and ‘know your customer’ checks on all loan applications.
The British Business Bank’s (the Bank’s) accreditation process for lenders and
post‑accreditation audits gives it assurance that lenders have the appropriate
controls in place to complete these checks (see Figure 2). To support lenders to
manage fraud‑related risks, the Bank established fraud prevention forums with
a wide group of stakeholders, to share best practice and aid implementation of
additional fraud measures.
Figure 2
Approval checks conducted by lenders on the COVID-19 business loan
support schemes
The Bounce Back Loan Scheme removed some approval checks to facilitate faster lending
Type of checks
Bounce Back
Loan Scheme
Coronavirus
Business Interruption
Loan Scheme
Coronavirus Large
Business Interruption
Loan Scheme
Anti-fraud



Anti-money
laundering



Know-your-customer
(ID verification)



Business viability



Loan affordability



Supporting
documentation



Self-certification



Note
1
Lenders also conduct transaction monitoring, as usual, for all schemes.
Source: HM Treasury

Investigation into the Bounce Back Loan Scheme Part One 17
1.8 Lenders are expected to approve and make payment of loans within
24 hours, or in some cases 48 hours if further fraud checks are required.
The Chancellor highlighted speed of delivery as a key requirement of the
Scheme when it was announced to ensure that small firms who need vital cash
injections can keep operating. The approval time only applies to existing business
customers. Under the terms of the Scheme there is no designated timeline
for existing personal or new customers and lenders will follow their standard
business procedures, which may include additional credit and fraud checks.
1.9 Internationally, governments have introduced and extended measures
to incentivise commercial banks to expand their lending to SMEs. The table
overleaf provides a summary overview of key terms of schemes in Germany and
Switzerland. We chose Germany and Switzerland as comparators because the
Chancellor used these as exemplar schemes. These schemes support small
SMEs with simplified application procedures without credit checks and provide a
100% guarantee to lenders. However, unlike the UK, the schemes do not rely fully
on self-certification, and require banks to check application details. The schemes
are also more restrictive in the way loans can be used (Figure 3 overleaf).
Roles and responsibilities
1.10 Officials from HM Treasury, the Department for Business, Energy & Industrial
Strategy (the Department) and the Bank worked together to design and get the
Scheme up and running. The Bank delivers the Scheme through private sector
lenders. The roles and responsibilities of the key parties involved in the Scheme
are described in Figure 4 on page 19.
Scheme objectives
1.11 HM Treasury did not develop a business case for the Scheme, which
means, at its launch the Scheme lacked clear objectives beyond the aim of
fast financial support for smaller SMEs. In order to allow effective appraisal,
planning, monitoring and evaluation, the Bank developed objectives after the
Scheme launch, in consultation with HM Treasury and the Department. The Bank
combined the objectives for the three COVID-19 debt programmes because of
the similarity of the objectives to provide financial support in the form of loans.
The Bank felt it was not “proportionate […] to produce a unique set of objectives
for each product” owing to the likely evolution of the three programmes, together
with the uncertain economic outlook. HM Treasury, the Department and the Bank
agreed the objectives on 15 July. The Department and the Bank told us that they
are in the process of developing metrics for measuring the performance of the
individual loan support schemes (Figure 5 on page 20).

18 Part One Investigation into the Bounce Back Loan Scheme
Figure 3
International comparisons of business loan support schemes
International comparators are similar to UK’s Bounce Back Loan Scheme but contain more detailed application
checks and are more restrictive in the use of proceeds
Germany
Switzerland
United Kingdom
Name of scheme
KFW-Schnellkredit 20201
COVID-19 Kredit1
Bounce Back Loan Scheme
Target companies
Businesses with more than
10 employees and which have been
incorporated before 1 Jan 2019.
Aims to support businesses
impacted by COVID-19 but not
a legal requirement.
Small- and medium-sized
businesses (SMEs) domiciled in
Switzerland which are financially
sound but have been impacted
by COVID-19.
No business size restrictions.
Business has been carrying on
business on 1 March 2020.
Businesses impacted by COVID-19.
Scheme details
Up to 25% of turnover up to
€800,000 (€500,000 for SMEs
with up to 50 employees).
3% interest on loans.
Up to 10-year term including
a two-year grace period.
Up to 25% of turnover
up to CHF500,000.
0% interest on loans.
Up to five-year term.
Up to 25% of turnover or a
maximum loan of £50,000
(minimum of £2,000).
2.5% fixed per annum
(government pays first
year of interest fees).3
Six years, starting after the first
year; option to extend to 10 years.3
Government
guarantee
100%
100%
100%
Start date
15 March 2020
25 March 2020
4 May 2020
End date
31 December 2020
31 July 2020
30 November 20203
Use of proceeds
Investments (except for
financial investments).
Operating expenses
(including interest payments
and repayments).
But no debt refinancing, limitation
on dividends and payments to board
members and chief executive officer.
Operating expenses.
But no debt refinancing,
investments and limitation
on dividends.
Businesses self-certify that they
will use the loan only to provide
economic benefit to the business,
but loan contract contains no
specific restrictions.
Application
checks
Banks check application details
(turnover, number of employees,
profit in 2019 or 2017–2019 in
total) and anti-fraud checks. They
do not conduct credit checks but
check for negative entries on the
applicant's credit record.
Banks use automated systems
to check application details
(for example, turnover) and
anti-fraud checks but do not
conduct credit checks.
Multiple applications are
checked centrally.
Banks carry out know-your-
customer, anti-fraud and
anti-money laundering checks
but do not conduct credit checks
for approval purposes.
Notes
1
KFW-Schnellkredit is based on KfW's website information (https://www.kfw.de/PDF/Download-Center/F%C3%B6rderprogramme-
(Inlandsf%C3%B6rderung)/PDF-Dokumente/6000004525_M_078.pdf and https://www.kfw.de/PDF/Download-Center/
F%C3%B6rderprogramme-(Inlandsf%C3%B6rderung)/PDF-Dokumente/6000004524_F_078_ergaenzende_angaben_schnellkredit.pdf).
2
COVID-19 Kredit is based on the Swiss Ministry of Finance's website (https://www.admin.ch/opc/de/offi cial-compilation/2020/1077.pdf and
https://www.efd.admin.ch/efd/de/home/covid19-ueberbrueckungshilfe/faq.html).
3
On 24 September, the Chancellor of the Exchequer announced changes to the Bounce Back Loan Scheme terms, including the end date of
the Scheme. Changes also include fl exibility for the borrowers in diffi culty to take payment holidays, temporarily pay only the interest on the loans
or extend the repayment period.
Source: National Audit Offi ce analysis

Investigation into the Bounce Back Loan Scheme Part One 19
Figure 4
Roles and responsibilities for delivering the Bounce Back Loan Scheme (the Scheme)
The government utilises arm’s-length bodies and private organisations to deliver the Scheme
Stakeholder
Description
HM Treasury
HM Treasury initiated the Scheme and, in conjunction with the Department for Business, Energy
& Industrial Strategy (the Department) and the British Business Bank (the Bank), set the policy
and designed the Scheme. HM Treasury collects and publishes Scheme data. It also leads the
discussion with lenders on finalising the operational guidance in relation to the debt recovery
process under the Scheme.
Department for Business,
Energy & Industrial Strategy
The Department is the Bank’s sole shareholder and has a wider policy remit for business and
enterprise. As sole shareholder, its accounting officer is ultimately responsible for the three
COVID-19-related business support schemes and issued the Written Direction to the Bank to
pursue the Scheme.1
British Business Bank
The Bank is the Department’s delivery partner for the loan schemes (via lenders). The Bank
helped design the Scheme and is responsible for its administration and implementation, in
consultation with HM Treasury and the Department. The Bank delivers the loans via a network
of accredited lenders.
Lenders
Accredited lenders review applications and provide loans to borrowers. Lenders are responsible
for conducting the required anti-fraud, anti-money laundering and ‘know your customer’ checks
prior to loan approval.
Other organisations involved
in fraud-related checks
The Bank coordinates with lenders and fraud-related organisations to mitigate fraud, including:
• Cabinet Office – Leads the Government Counter Fraud Function and works closely with the
Bank and lenders to tackle fraud.
• National Crime Agency – Investigates and prosecutes the most serious fraud cases such
as those involving serious or organised crime and terrorist groups.
• National Investigation Service (NATIS) – NATIS is a law enforcement body specialising
in financial crime and fraud, mostly at a local authority level. NATIS will investigate and
prosecute medium/high severity fraud cases, supported by the Crown Prosecution Service.
• Insolvency Service – Investigates and prosecutes breaches of company legislation and
other criminal offences on the Department’s behalf.
• Companies House – The UK’s registrar of companies; can share company data to enable
better identification of fraudulent applications.
• UK Finance – A trade association for the banking and finance industry.
• Counter-Fraud organisations – There are several nationally recognised organisations
that allow lenders to check loan applications for fraud. Under the terms of the Scheme,
each lender must use a reputable counter-fraud organisation to screen for fraud at the
application stage.
Note
1
The three COVID-19-related business support schemes are: the Coronavirus Business Interruption Loan Scheme, the Coronavirus
Large Business Interruption Loan Scheme and the Bounce Back Loan Scheme.
Source: Department for Business, Energy & Industrial Strategy

20 Part One Investigation into the Bounce Back Loan Scheme
Scheme launch and subsequent events
1.12 The Chancellor launched the Scheme on 4 May, within two weeks of
proposing it to the Department and the Bank. The Bank was able to move
quickly because it amended the reporting system (the portal) of an existing
programme (Enterprise Finance Guarantee scheme) to support the Scheme.2
In its Reservation Notice, the Bank raised concerns around the “compressed
timetable” which has created “huge operational challenges for delivery partners”.3
The Bank explained that given the pace at which decisions were being made, it
would not be feasible to put in place “robust controls and governance” to ensure
public funds are used appropriately. The Department recognised the restrictions
and limitations imposed on the Bank in its Ministerial Direction to proceed with
the Scheme on 3 May. The Department recognised the restrictions and limitations
imposed on the Bank in its Ministerial Direction to proceed with the Scheme on
3 May (Figure 6 on pages 22 and 23).
2
Government-backed debt finance for viable smaller businesses lacking security, launched in 2009. At the
March Budget 2020 it was announced that this programme would be suspended and replaced by the
Coronavirus Business Interruption Loan Scheme.
3
The Bank’s Reservation Notice is similar to an accounting officer’s request for a ministerial direction. It is a
statement from the Bank to the Department to outline any concerns it has with a specific policy. In this case,
the relevant grounds were: propriety; value for money; and feasibility.
Figure 5
Objectives for the three COVID-19 business loan support schemes
The loan guarantee schemes have seven overarching objectives, split into short-, medium-, and long-term1
Objective
Short term
(COVID-19 restrictions place significant
limits on business operations)
1
Guarantee schemes complement other government support and initiatives.
2
Unlock finance at scale and pace such that businesses disrupted
by COVID-19 still have access to finance.
Medium term
(COVID-19 restrictions lifted)
3
Businesses receive the maximum opportunity to maintain liquidity until
lockdown measures are lifted (given what was known about the pandemic
at the scheme launch date).
4
Scheme design should incentivise appropriate risk-taking by lenders.2
Long term
(over the life of the loan)3
5
Debt structure should take account of long-term business survival.
6
Debt structure should allow firms with long-term growth potential to
continue to grow.
7
Long-term economic benefits realised from 5) and 6) exhibit value for
money against any government-incurred losses.
Notes
1
The three COVID-19-related business support schemes are: the Coronavirus Business Interruption Loan Scheme,
the Coronavirus Large Business Interruption Loan Scheme and the Bounce Back Loan Scheme.
2
‘Appropriate’ will vary across the three business loan support schemes.
3
The long-term objectives are subject to subsequent or further rounds of government support initiatives and policy direction.
Source: British Business Bank

Investigation into the Bounce Back Loan Scheme Part One 21
1.13 The Reservation Notice highlights, given the speed of delivery, that it
was not possible to agree with lenders a methodology to prevent duplicative
applications at launch, and incorporate this in the Scheme legal agreement.
The structure of the Scheme means that lenders initially had no way of
identifying multiple applications made across lenders.4 While lenders were not
required to identify duplicate applications under the Scheme terms, the Bank
worked with lenders and counter-fraud groups to develop this methodology
and it was implemented on 2 June. Prior to this, the Bank and the Department
identified, based on a fraud organisation’s estimate, that up to 2.3% of
approved applications were duplicates.
1.14 The Bank’s reporting portal (paragraph 1.12) was designed to allow the
Bank to collect loan-level data to administer guarantees in the event of borrower
default. While the portal was in place at Scheme launch, it could not consolidate
the activities of lenders on a daily basis, such as the number of borrowers and the
borrower information. This is because automated reporting was not yet available,
requiring lenders to upload data on individual loans manually, rather than in
bulk. Manually uploading the data was a slow process owing to the volume of
applications. In order to assist with Scheme monitoring HM Treasury put in place
a database collecting daily reports directly from lenders, and both HM Treasury
and the Bank monitored the activity levels. The Bank finalised the amendments
to the existing system by mid-June, while HM Treasury continues to collect data
and monitors the overall lending activities of lenders. The information held on
the Bank’s and HM Treasury systems does not reconcile (see Appendix One for
further information).
1.15 The Scheme is underpinned by a legal agreement between the Bank and
the lenders setting out the contractual terms and conditions, and a lenders’ manual
which provides operational guidance on administering the Scheme. According to
the Bank it followed its standard principles-led approach, in which the details of a
scheme’s operational guidance evolve in accordance with the principles laid out in
the legal agreement. At Scheme launch there were three areas where operational
guidance needed to be agreed with the lenders: how the guarantee would work
in practice; the recovery process, if the loans were in default; and how lenders’
compliance with the terms of the Scheme might be audited.
1.16 HM Treasury is leading the work on the recovery process and the Bank on
the other two. HM Treasury and the Bank expect to complete the recovery and
guarantee work by winter 2020-21 to allow time for lenders to put it into operation
and communicate with borrowers ahead of the first repayments on loans, which
are due from May 2021. The Bank has completed how lenders are audited and
the audits started in September 2020.
4
The Scheme is being delivered by accredited lenders who assess each application independently of one another.

22 Part One Investigation into the Bounce Back Loan Scheme
Figure 6
Timeline of events for the Bounce Back Loan Scheme (the Scheme)
The Scheme was launched on 4 May 2020, less than two weeks after the Chancellor of the Exchequer (the Chancellor) proposed
it to the Department for Business, Energy & Industrial Strategy (the Department) and the British Business Bank (the Bank)
Mar
Apr
May
Jun
Jul
11 Mar 2020
Budget 2020:
The Chancellor
announces the
government’s
Coronavirus Business
Interruption Loans
Scheme (CBILS).
23 Mar 2020
CBILS opens
for applications.
Full lockdown
restrictions
announced by
the Prime Minister.
3 Apr 2020
CBILS extended to cover
more businesses and to make
it easier to access funds.
Coronavirus Large Business
Interruption Loans Scheme
(CLBILS) announced.
20 Apr 2020
CLBILS opens
for applications.
23 Apr 2020
Draft ‘headline’ terms
for a 100% guarantee
scheme issued to the
Bank by HM Treasury.
HM Treasury holds initial
discussions with lenders.
Early to mid-April 2020
Public criticisms of the
existing systems include that
their scope is too narrow, and
that funds are not reaching
businesses quickly enough.
21 and 22 Apr 2020
Initial meetings
and operational
discussions
between the
Chancellor and
HM Treasury.
27 Apr 2020
The Chancellor unveils
the Scheme to Parliament,
setting the launch date as
4 May 2020.
Implementation of
regulatory changes.
Source: National Audit Offi ce analysis of HM Treasury, British Business Bank and Department for Business, Energy & Industrial Strategy documents

Investigation into the Bounce Back Loan Scheme Part One 23
Aug
Sep
Oct
Nov
Dec
2021
1 May 2020
The Chancellor provides the
Department with final approval
to introduce the Scheme.
The Department’s accounting
officer (AO) writes to the Bank’s
AO instructing him to continue
with preparations.
3 May 2020
The Department’s
AO issues written
direction to the
Bank to implement
the Scheme,
on behalf of the
Secretary of State.
2 Jun 2020
The Bank implements a
multiple application check.
4 May to 31 Dec 2021
Borrowers commence
interest and capital
repayments on the loans.
2 May 2020
The Bank’s AO writes
to the Secretary of
State for Business
setting out the Bank
Board’s reservations.
4 May 2020
Scheme launched.
Bank of England confirms the
Prudential Regulation Authority’s
regulatory treatment of the Scheme.
The Financial Ombudsman and the
Financial Conduct Authority exchange
letters outlining the regulatory
implications of the Scheme and their
respective responses.
The Bank puts portal in place.
30 Nov 2020
The Scheme closes
for new applications.
Existing applications
can be processed up
to 31 December 2020.
24 Sep 2020
The Chancellor
announces changes
to the Scheme.
The Scheme’s
end date for new
loan applications
is extended from
4 November to
30 November.

24 Part Two Investigation into the Bounce Back Loan Scheme
Part Two
Scheme performance
2.1
This Part looks at the performance of the Bounce Back Loan Scheme
(the Scheme). This includes: the number and value of loans provided; how they
are distributed by business type, size and geographical location; the number
of accredited lenders involved; the loan approval processing time; and the
Scheme’s costs.
2.2 There are three business loan support schemes which have provided a total
of 1.3 million loans worth £55.3 billion by 6 September. HM Treasury data shows
that the Scheme is the largest of the three, providing £36.9 billion – 67% of
the total loans by value (Figure 7). The aggregate value of loans provided under
the three schemes between March and September is close to the total lending
to small- and medium-sized enterprises (SMEs) in 2019, which amounted to
£57 billion.5 The average monthly lending to SMEs in 2019 was £4.5–5 billion.
2.3 The purpose of the Scheme is to provide fast-track financial support for
small businesses and in the first week of operation 268,000 loans were approved,
totalling £8.4 billion. Within the first month this increased to £21.3 billion
(699,000 loans) representing more than 58% of the outstanding amount as
of 6 September (Figure 8 on page 26). The volume of loan approvals has been
faster compared to both the Coronavirus Business Interruption Loan Scheme
(CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS),
which approved 19,000 and 154 loans respectively in the first month of operation.
More than 80% of loan applications have been approved under the Scheme,
which is higher than both CBILS and CLBILS (48% and 57% respectively).6
2.4 At launch, the Department for Business, Energy & Industrial Strategy
(the Department) and the British Business Bank (the Bank) expected the
Scheme to support 800,000 to 1,200,000 businesses with between £18 billion
and £26 billion loaned. They currently estimate the amount to reach between
£38 billion and £48 billion by 4 November.
5
Coronavirus Large Business Interruption Loan Scheme provides lending to businesses with a turnover above
£45 million, and therefore may include businesses which are above the size threshold of SME businesses of
£500 million.
6
The approval percentage has been calculated by using HM Treasury data on applications received and
applications approved. The received application data include all applications approved, in progress, withdrawn,
or declined.

Investigation into the Bounce Back Loan Scheme Part Two 25
Loan approval processing time
2.5 Under the terms of the agreement with lenders, loan applications should
be approved, with the money provided to borrowers, within 24 hours, or in
some cases 48 hours.7 Based on lenders’ reports to HM Treasury, the average
application time for existing business customers was between 24 and 72 hours.
Neither HM Treasury, nor the Bank, monitor lenders’ approval time for existing
personal customers and new customers. Feedback from lenders during the
design process indicated that applications by existing personal customers
would take between two and four days to complete if applicants were able to
provide the necessary information. Recent feedback from two large lenders
indicates that existing personal customer processing times may take longer
than anticipated at launch and for new customers it may take between four
and 12 weeks. This is because of the volume of applications, and COVID-19
related operational constraints.8
7
If a potential fraud risk is identified with an application, the loan should be approved within 48 hours to allow for
additional manual checks to be carried out.
8
We undertook a survey of 15 lenders under the Scheme and received 10 responses (see Appendix One).
The responses include four of the five largest UK lenders – of these, three provide loans to new customers
although one of them has only accepted applications from a small number of business clients. Based on the
other two lenders (representing 36% of all loan applications drawn (by number) under the Scheme), the time
required to open a new account ranges between four and 12 weeks.
Figure 7
Number and value of loans provided by the three COVID-19 business
support schemes
The Bounce Back Loan Scheme is the largest of the three COVID-19-related schemes
Business loan support scheme1
Total number
of loans provided2
Total value of loans
(£bn)2
Coronavirus Business
Interruption Loan Scheme
63,647
14.6
Coronavirus Large Business
Interruption Loan Scheme
553
3.8
Bounce Back Loan Scheme
1,222,548
36.9
Total
1,286,748
55.3
Notes
1
The Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme
and Bounce Back Loan Scheme were launched on 23 March 2020, 20 April 2020 and 4 May 2020 respectively.
2
Figures as at 6 September 2020.
Source: National Audit Offi ce analysis of HM Treasury scheme data

26 Part Two Investigation into the Bounce Back Loan Scheme
8.4
5.8
3.6
3.5
2.5
2.6
1.7
1.4
1.4
0.8
1.1
0.9
0.7
0.6
0.5
0.4
0.5
0.4
0
5
10
15
20
25
30
35
40
0
1
2
3
4
5
6
7
8
9
10
May
Jun
Jul
Aug
Sep
17
24
31
14
21
28
12
19
26
2
9
16
23
30
6
7
5
Figure 8
Value of loans provided per week since the launch of the Bounce Back Loan Scheme (the Scheme)
Value of loans (£bn)
In the four months since the Scheme’s launch, £36.9 billion of loans have been provided to businesses1
Notes
1
The Scheme was launched on 4 May 2020.
2.
Figures as at 6 September 2020.
Source: National Audit Ofﬁce analysis of HM Treasury scheme data
Value of loans provided (£bn)
Cumulative value of loans provided (£bn)
Cumulative value of loans £bn

Investigation into the Bounce Back Loan Scheme Part Two 27
Scheme figures
2.6 Figure 9 overleaf provides a summary of the number and value of bounce
back loans. The average loan under the Scheme is £30,343, with 35% of loans
by number being at the Scheme’s maximum of £50,000.
2.7 Around 90% of loans were provided to micro businesses, defined by
Companies House as having an annual turnover below £632,000 (Figure 10 on
page 29), which is in line with the Scheme aim of providing financial support to
smaller SMEs. More than 70% of all loans were received by businesses with an
annual turnover below £250,000 (£20.7 billion from 850,000 loans).
2.8 Three-quarters of the total support was provided to private limited
companies, which received £26.5 billion from 793,000 loans. Sole traders
received £6.4 billion from 297,000 loans, representing almost one-fifth of the
total support (Figure 11 on page 30). More than one-third of bounce back loans
were received by businesses that have been operating for more than four years.
2.9 The geographic distribution of the businesses supported by the Scheme is
in line with the overall distribution of businesses in the UK (Figure 12 on page 31).
For example, businesses in London, which represent 19% of the total UK SME
population, received 20% of loans (235,000 loans).
2.10 A split by industry sector shows that real estate, professional services and
support activities received the largest support by value and number of loans
from the Scheme, at £8.5 billion (24% of the total by value) from 283,000 loans.
The construction sector received the second highest number of loans, receiving
£5.7 billion from 193,000 successful applications. The accommodation, wholesale
and retail trade, construction, transport, manufacturing and recreational sectors
all have a higher proportion of loans under the Scheme compared with their
pre‑COVID borrowing levels (Figure 13 on pages 32 and 33).
Post publication this page was found to contain an error which has been corrected (Please find Published Correction Slip)

28 Part Two Investigation into the Bounce Back Loan Scheme
68,115
265
151,463
1,289
250,554
4,079
153,181
4,012
79,228
2,931
49,235
2,250
406,170
20,309
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
22,500
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Less than or
equal to
£5,000
£5,001 to
£10,000
£10,001 and
£20,000
£20,001 to
£30,000
£30,001 to
£40,000
£40,001 to
£49,999
£50,000
Loan size
Figure 9
Number and value of loans provided by the Bounce Back Loan Scheme (the Scheme), grouped by loan size
Number of loans approved
Most loans are at the maximum value of £50,000
Notes
1
Loans are capped at 25% of turnover or a maximum of £50,000. The minimum loan value is £2,000.
2
Figures as at 7 September 2020.
Source: British Business Bank data
Number of loans provided
Value of loans provided
Value of loans approved (£m)

Investigation into the Bounce Back Loan Scheme Part Two 29
Figure 10
Total value and number of loans provided by the Bounce Back Loan
Scheme (the Scheme), by business size
Micro businesses received the highest number of loans (1,038,662) at a value of £29.4 billion
Business size
Total value of
loans provided
(£m)
Total number of
loans provided
Micro1
29,437
1,038,662
Small
5,471
113,849
Medium
107
2,575
Mid-sized
115
2,739
Large
5
121
Total
35,135
1,157,946
Notes
1
Business sizes are defi ned by turnover: micro businesses have a turnover below £632,000; small businesses
have a turnover between £632,000 and £10.1 million; medium businesses are between £10.2 million and
£24.9 million; mid-sized businesses have a turnover between £25 million and £500 million; and large
business have a turnover greater than £500 million.
2
The Scheme was launched on 4 May 2020.
3
Figures as at 7 September 2020.
Source: British Business Bank data

30 Part Two Investigation into the Bounce Back Loan Scheme
26,499
6,389
1,874
373
0
5,000
10,000
15,000
20,000
25,000
30,000
Private limited
company
Sole
trader
Partnership
Other
Legal form of the borrower
Figure 11
Total value of loans provided by the Bounce Back Loan Scheme
(the Scheme), by legal form of the borrower
Value of loans approved (£m)
Private limited companies received the highest value of loans at £26.5 billion
Notes
1
The ‘other’ category includes limited liability partnerships (£231 million), public limited companies (£15 million)
and those businesses where the legal form could not be identiﬁed (£127 million).
2
The Scheme was launched on 4 May 2020.
3
Figures as at 7 September 2020.
Source: British Business Bank data

Investigation into the Bounce Back Loan Scheme Part Two 31
20.3
13.9
10.7
9.6
8.1
8.1
7.1
6.4
6.1
3.8
3.2
2.4
18.6
16.0
9.9
10.2
8.2
9.6
7.3
6.1
5.7
3.8
2.6
2.1
0
2
4
6
8
10
12
14
16
18
20
22
London
South East
North West
East of England
West Midlands
South West
Yorkshire and
The Humber
East Midlands
Scotland
Wales
North East
Northern Ireland
Percentage (%)
Region
Figure 12
A comparison of the share of loans provided by the Bounce Back Loan Scheme (the Scheme)
against the small- and medium-sized enterprise (SME) population, by region
The regional distribution of loans under the Scheme broadly reﬂects the population of SMEs across the UK
Notes
1
The percentage of Scheme lending does not sum to 100% because the regional data for some loans were not valid.
2
An SME is deﬁned as any business with fewer than 250 employees.
3
SME population data as at 2019. Scheme data as at 7 September 2020.
Source: National Audit Ofﬁce analysis of British Business Bank and Department for Business, Energy & Industrial Strategy data
Percentage of Scheme lending
Percentage of SME population

32 Part Two Investigation into the Bounce Back Loan Scheme
0
5
10
15
20
25
30
35
40
45
Real estate,
professional services
and support activities
Wholesale and retail trade
Construction
Accommodation and
food service activities
Transport, storage
and communication
Manufacturing
Recreational, personal
and community
service activities
Health and social work
Agriculture, forestry
and ﬁshing
Education
Electricity, gas and
water supply
Mining and quarrying
Public administration
and defence
Percentage (%)
Industry sector
24.2
18.7
16.1
6.6
8.9
9.1
9.6
8.9
4.1
4.0
7.6
10.0
2.9
1.6
2.0
0.7
1.8
0.6
0.1
0.4
0.1
6.1
5.9
6.0
2.6
40.5
Figure 13
A comparison of small- and medium-sized enterprise (SME) borrowing market share between
pre-COVID-19 levels and under the Bounce Back Loan Scheme (the Scheme), by industry sector
The wholesale and retail trade sector’s share of borrowing is more than twice as much under the Scheme than prior to the
COVID-19 outbreak
Scheme market share (%)
Pre-COVID-19 SME borrowing market share (%)
Post publication this page was found to contain an error which has been corrected (Please find Published Correction Slip)

Investigation into the Bounce Back Loan Scheme Part Two 33
Lenders
2.11 The Scheme was launched with seven accredited lenders, consisting of the
five largest UK banks (Barclays, HSBC, Lloyds/Bank of Scotland, NatWest/RBS
and Santander) and two other banks (Figure 14 overleaf).9 Six of these lenders
were ready to accept loan applications at the Scheme launch date; the seventh
lender started one day later. The first non-bank was accredited a week after launch
(11 May) and began participating in the Scheme from 18 May.10 By 18 September,
23 lenders had been accredited – seven of these being non-banks.11
2.12 Non-banks, such as building societies and peer-to-peer lenders, were
responsible for less than 1% of all loans provided under the Scheme (3,000 loans)
as of 7 September. In contrast, the UK’s five largest banks distributed 89% of
loans (1,031,000 loans) (Figure 15 on page 35).
Scheme costs
2.13 The Bank made a preliminary assessment of the administrative costs for
the three business loan support schemes in September 2020. This assessment
estimates the three schemes to incur a total cost of £20 million by the end of
2020-21, and £75 million by the end of 2024-25.12 These costs do not include
the Department and HM Treasury’s costs. The Bank explained to us that many
costs of the three schemes, such as the outsourced operations or the portal, are
interlinked and allocation between the schemes is, therefore, difficult. The Bank
made a preliminary allocation of the costs using an expected value or volume
of work on the three schemes. Based on this allocation, the Bank expects to
incur Scheme costs of £9 million by the end of 2020-21, and £32 million by the
end of 2024-25: this represent around 40% of the overall estimate of the three
COVID-19 business loan support schemes.
9
Largest UK banks as defined by the British Business Bank.
10 Non-banks are institutions that are not registered with the Prudential Regulation Authority.
11
The 23 accredited lenders represent the parent companies only. The total number of lenders, after separating
out the individual brands acting on behalf of the parent company, is 28.
12 The cost estimate has been rounded to the nearest £5 million. The estimate is £74.4 million. The preliminary
assessment does not reflect Scheme changes announced by the Chancellor on 24 September.
Figure 13 continued
A comparison of small- and medium-sized enterprise (SME) borrowing market share between
pre-COVID-19 levels and under the Bounce Back Loan Scheme (the Scheme), by industry sector
Notes
1
Scheme data as at 7 September 2020.
2
Pre-COVID-19 borrowing market share is an average of the 12-month period from January 2019.
3
Pre-COIVD-19 borrowing levels are based on Bank of England data which uses the deﬁnition of an SME as any business with annual turnover
below £25 million.
4
Figures do not sum to 100% as not all industry sectors have been included owing to incomplete information, or a lack of SME lending comparison data.
5
Industry sectors are based on Standard Industry Classiﬁcation (SIC) codes adapted to bring them in line with the categories used in the Bank of
England’s Bankstats. As such, the industry sectors and percentages differ slightly to those published by the British Business Bank.
Source: National Audit Ofﬁce analysis of British Business Bank and Bank of England data

34 Part Two Investigation into the Bounce Back Loan Scheme
2.14 The Bank’s assessment suggests at least 75% of the administration
costs are external. The Bank estimates the two largest items, lender audits and
outsourced operations, will cost £55 million by the end of 2024-25.13 The Bank
explained that these estimates are uncertain owing to the difficulty in predicting
the volume and scope of work. The volume of work will be affected by the actual
levels of credit and fraud losses. The scope of work is affected by the outcome of
the recovery process led by HM Treasury.
13 The figure £55 million for the three business support schemes is based on three line items in the Bank’s
forecast. The items relate to lender audits and operation centre activities.
0
5
10
15
20
25
Scheme launch
May
June
July
August
Date of accreditation
2
5
8
5
2
6
6
7
11
5
11
5
11
5
Figure 14
Cumulative number of lenders accredited under the Bounce Back Loan
Scheme (the Scheme)
Number of accredited lenders
The Scheme was launched with seven accredited lenders, with a further 16 added over time

Non-banks

Other banks

Five largest UK banks
Notes
1
The Scheme was launched on 4 May 2020.
2
The ﬁve largest UK banks are Barclays, HSBC, Lloyds/Bank of Scotland, NatWest/RBS and Santander.
3
Non-banks are institutions that are not registered with the Prudential Regulation Authority.
4
The accreditation date is the point at which a lender is approved to participate in the Scheme.
The point at which a lender starts accepting applications is not always the same as the accreditation date.
Source: National Audit Ofﬁce analysis of British Business Bank data

Investigation into the Bounce Back Loan Scheme Part Two 35
2.15 Under the Scheme the government pays a borrower’s first 12 months of loan
interest directly to the lender. This payment is a grant, and covers the borrower’s
interest payments but not capital repayments.14 After the first year, borrowers
are required to make full repayments (capital and interest) up to the end of the
six‑year term, in line with their arrangement with their lender. The Department
and the Bank forecast the cost to total £1,068 million (£847 million in 2020-21
and £221 million in 2021-22); this will rise as more loans are issued.15
14 This payment is referred to as a ‘Business Interruption Payment’.
15 The Chancellor of the Exchequer announced changes to the Scheme rules on 24 September. Full details of the
changes were not available at the publication of this report. The changes allow an increase in the time borrowers
have to repay the loan.
Five largest UK banks
£31,259 million
(89.0%)
Other banks
£3,790 million
(10.8%)
Non-banks
£86 million
(0.2%)
Figure 15
Value of loans provided by the Bounce Back Loan Scheme (the Scheme),
by lenders
Notes
1
Figures as at 7 September 2020.
2
The ﬁve largest UK banks are Barclays, HSBC, Lloyds/Bank of Scotland, NatWest/RBS and Santander.
3
Non-banks are institutions that are not registered with the Prudential Regulation Authority.
Source: National Audit Ofﬁce analysis of British Business Bank data
Nearly 90% of the total value of all bounce back loans have been provided by the ﬁve largest
UK banks

36 Part Three Investigation into the Bounce Back Loan Scheme
Part Three
Value-for-money risks
3.1
Whether the Bounce Back Loan Scheme (the Scheme) represents value
for money will depend upon the Scheme delivering its overall objectives, the
ultimate costs and how well the risks are managed. The then accounting officer
for the Department for Business, Energy & Industrial Strategy (the Department)
requested a ministerial direction to proceed with the Scheme. She raised
concerns based on value for money, “propriety” that may also impact “regularity”,
as well as feasibility and concerns on competition.16 The British Business Bank’s
(the Bank’s) Board also issued a Reservation Notice on propriety, value for
money and feasibility. We cannot conclude on value for money at this stage in
the Scheme’s lifecycle. This part outlines: the main Scheme risks; mitigation
strategies, where they exist; and the potential impact to the taxpayer.
Credit and fraud risks
3.2 A credit risk is the risk that a borrower does not repay a loan. The Scheme
relies on businesses self-certifying application details. Lenders are required to
perform limited verification and no credit or affordability checks. The Bank and
the Department were concerned that the lower level of credit checks may result
in lenders making loans to businesses which are unable to repay, leading to the
loss of taxpayer money; but HM Treasury felt on balance it was necessary to
increase delivery speed. According to the Department, “the fact that businesses
that were unviable before COVID-19 may be able to access the Scheme owing
to the absence of external credit checks […] creates significant risks around
value for money, propriety and potentially regularity,…”. The Bank agreed with
the Department’s view.
16 HM Treasury’s Managing Public Money states that accounting officers should seek a direction on Regularity:
“if a proposal is outside the legal powers, parliamentary authority, or Treasury delegations; or incompatible with
the agreed spending budgets” and on Propriety if “a proposal would breach parliamentary control procedures
or expectations”.

Investigation into the Bounce Back Loan Scheme Part Three 37
3.3 Fraud is dishonesty which can be a false representation, a failure to disclose
information that is legally required, or the abuse of position, with the intention
to cause financial gain or loss.17 HM Treasury, the Department and the Bank
recognise that, in the interests of speed, the decision to allow limited customer
verification and a lower level of credit checks leaves taxpayers exposed to a
significant fraud risk, even after lenders have implemented mitigation strategies.
3.4 The Bank assessed the fraud risks early and instructed a third-party,
PricewaterhouseCoopers LLP (PwC), to conduct a risk review. The review
aimed to support the Bank in understanding and articulating the potential fraud
risks that may crystallise, based on the views of the lenders participating in
the Scheme. The review found that, while some risks in the Scheme can be
mitigated, there remains a “very high” level of residual fraud risk as defined
by the Cabinet Office’s Government Counter Fraud Function risk assessment
methodology. Based on feedback from the lenders, PwC summarised the main
residual external fraud risks coming from self-certification, multiple applications,
lack of legitimate business, impersonation and organised crime. The fraud risks
were also highlighted in, and contributed to, the Bank’s Reservation Notice and
the Department’s request for a ministerial direction (see paragraph 1.12).
3.5 The nature of the Scheme places the main responsibility for managing
fraud risk on the lenders as part of the loan approval process. Subject to lenders
meeting the Scheme rules, including limited fraud checks, they are entitled to the
government guarantee. The guarantee agreement sets minimum fraud standards.
The lenders are obliged to ensure that applicants pass anti-fraud, anti-money
laundering and ‘know your customer’ checks, but they are not allowed to apply
a credit check for loan approval purposes. They can only refuse an eligible
application based on fraudulent self-certification if it can be identified from the
information in the application. Lenders may conduct additional checks for new
customers or existing customers requiring a new bank account.
17 As set out in the Fraud Act 2006.

38 Part Three Investigation into the Bounce Back Loan Scheme
3.6 The Bank has been working with lenders to improve checks and has
established fraud prevention forums with a wide group of stakeholders to share
best practice and aid implementation of additional fraud measures. However, it is
reliant on lenders’ goodwill to manage the risks, given that these additional checks
are over and above what is required in the Scheme agreement. The Bank, through
its coordination function, alongside the Department works with lenders to utilise
the portal for fraud loss measurement and reporting. At the end of September, the
Department put in place a service level agreement with the National Investigation
Service (NATIS) to support it identifying and responding to fraud within the
COVID-19 loan schemes. Under the agreement, NATIS will help identify suspicious
activities as well as investigate priority fraud cases, exercising law enforcement
capabilities. From October 2020, lenders will produce a monthly fraud report.
Although this is not active fraud prevention, given it is conducted once the lenders
upload the details into the portal, it is aimed at identifying and minimising potential
losses. However, the Bank is currently unable to estimate the overall level of fraud.
Based on the Cabinet Office’s Government Counter Fraud Function, fraud losses
are likely to be significantly above the general estimates of public sector fraud
levels of 0.5% to 5%.
Total potential impact of credit and fraud risks
3.7 There is a high degree of uncertainty in estimates of the Scheme’s expected
losses (Figure 16). According to the Bank, credit and fraud risks are interrelated
and therefore are not separately identifiable. In the Department’s advice leading
up to the Ministerial Direction, it estimated potential losses to range between
30% and 75% and did not rule out actual losses being “even higher”. In its
annual report and accounts, published in September 2020, the Department
estimated that 35% to 60% of borrowers could default on the loans as a result
of credit and fraud risk. This was based on historic losses in prior programmes
which most closely resemble the Scheme. Assuming the Department’s expected
default rates, and Scheme size estimate of £43 billion, implies a potential cost
to the government owing to credit and fraud losses of between £15 billion and
£26 billion.18 However, actual losses could differ from those forecast. The full
extent of credit losses and fraudulent applications will not become apparent until
after borrowers are due to start repaying loans (from 4 May 2021) – government
is paying interest on all loans for the first 12 months.19
18 £43 billion is based on the rounded mid-point value of the estimated Scheme lending of £37.7 billion
and £48.7 billion.
19 The estimates of credit and fraud losses have been made before 24 September 2020 and, as such, do not
reflect changes to the Scheme announced by the Chancellor of the Exchequer.

Investigation into the Bounce Back Loan Scheme Part Three 39
Figure 16
Estimated credit and fraud loss rates on the Bounce Back Loan Scheme
(the Scheme)
Expected loss estimates under the Scheme range from 15% to 80%

Estimated credit and fraud loss rate (%)
At scheme launch
Most recent estimate
Minimum
Maximum
Minimum
Maximum
HM Treasury
40
40
N/A
N/A
Department for
Business, Energy &
Industrial Strategy1
30
75
35
60
British Business Bank2
30
50
35
80
Office for
Budget Responsibility3
N/A
N/A
15
60
Notes
1
The Department for Business, Energy & Industrial Strategy’s (the Department’s) latest expectation is based
on the British Business Bank’s (the Bank’s) data and is published in the Department’s 2020 annual report
and accounts.
2
As of 9 September, the Bank’s base scenario is 35%–60%, with a current central estimated loss rate of 45%:
pandemic as expected, mitigation effect, loan scheme design, and wider measures as expected. The downside
scenario is 60%–80%: pandemic longer than expected, mitigation effect smaller than expected.
3
The Offi ce for Budget Responsibility (OBR) assumes a base case of 30%, and upside and downside scenarios
of 15% and 60% depending on the UK’s economic performance. These estimates were published in July.
4
The Scheme was launched on 4 May 2020.
5
The estimates of credit and fraud losses have been made before 24 September 2020 and, as such, do not
refl ect changes to the Scheme announced by the Chancellor of the Exchequer.
Source: British Business Bank, the Department for Business, Energy & Industrial Strategy, HM Treasury,
and the Offi ce for Budget Responsibility
Post publication this page was found to contain an error which has been corrected (Please find Published Correction Slip)

40 Part Three Investigation into the Bounce Back Loan Scheme
Recovery process
3.8 In the event a borrower does not repay the loan (a default), the Bank expects
lenders to pursue “appropriate recovery processes”, in line with their existing
standards. The recovery process for loans in default is less onerous than in
the other COVID-19-related business loan support schemes; unlike the other
schemes, the Scheme has not been designed with an open-ended recovery
timescale. Lenders are given a 12-month time limit after they have issued a formal
demand on the borrower to pursue outstanding amounts. However, claiming on
the government guarantee is not conditional on having completed the recoveries
process; lenders are able to make a claim on the government guarantee “within a
reasonable time period” following the first formal demand date, and may claim
if they believe “no further payment is likely”. Any outstanding debt collected
by the lender after the guarantee has been claimed would be paid back to the
government. The Scheme does not include actions to recover outstanding debt
after the 12-month time limit, for example by requiring lenders to continue recovery
processes in exchange for a fee. According to the Department, “the Chancellor
has given a firm steer against this” because, as HM Treasury explained, he
believes 12 months is an appropriate time frame to pursue a loan of this nature.
‘Moral hazard’
3.9 Borrowers may have limited incentives to pay back the loans, and with
a 100% guarantee, lenders have limited incentives to seek a full recovery.
The Scheme’s loan terms do not require the borrower to provide any security,
such as personal guarantees or assets. This risk is further increased by the
approach to recovery of any outstanding debt and government providing lenders
a 100% guarantee against the outstanding payments under the Scheme
(both capital and interest). This is a higher guarantee level than the other
COVID‑19‑related business loan support schemes which are typically 80%
(Figure 1, page 14). To overcome this the Bank has asked lenders to stress to
borrowers that non‑repayment of loans may affect a business’s future credit
rating, and thus its ability to borrow.

Investigation into the Bounce Back Loan Scheme Part Three 41
Wider value-for-money risks
Crowding out
3.10 The Bank’s data shows that the five largest UK lenders (Barclays,
HSBC, Lloyds/Bank of Scotland, NatWest/RBS and Santander) approved
£31.3 billion through 1,031,000 loans, while the remaining 18 lenders were
responsible for approving £3.9 billion through 127,000 loans. Thus, the largest
UK lenders are responsible for 89% of the value of the loans distributed.
This is market‑distorting. Bank of England data estimate the total small- and
medium‑sized enterprise (SME) debt to be £167 billion, with the big banks
accounting for 65% of the lending. The Bank and the Department raised
concerns that the Scheme’s terms are making it uncompetitive for smaller
lenders to compete with incumbents which, in turn, has a negative impact on
competition in the SME lending sector. Although HM Treasury recognised this
concern, it believed it to be a commercial decision for individual lenders. One of
the Bank’s key objectives is to help create a more diverse finance market for
smaller businesses, with a greater choice of options and providers.20 The Bank
has sought to mitigate this risk by broadening the number of lenders under the
Scheme – see Figure 14 on page 34.
3.11 Government fixed the loan interest rates at 2.5% in order to provide a
“reasonable return” for lenders while remaining attractive to borrowers, but
policy-makers recognised that this rate would mean that there would be limited
economic incentive for challenger banks and other lenders to participate in the
Scheme. Based on HM Treasury’s assessment of an average loan size of £15,000
and an interest rate of 2.5%, it would allow lenders to make an expected return
lower than the UK banking sector average of 0.7%. However, the current average
loan size is approximately £30,000, and these loans are risk-free for the lender
as they are government-guaranteed, and so the expected returns may differ.
3.12 The Bank accredited most lenders under the Scheme using an ‘accelerated
lender accreditation process’. The Bank applied this process to lenders which were
already accredited under the Coronavirus Business Interruption Loan Scheme
(CBILS). The process involved checks against their fraud processes, operational
capacity and plans for recoveries. There were only three new lenders and they
were subject to the Bank’s standard accreditation process. In turn, the Bank
has put in place an audit plan to ensure lenders’ compliance with the Scheme.
20 Comptroller and Auditor General, British Business Bank, Session 2019-20, HC 21, National Audit Office,
February 2020.

42 Part Three Investigation into the Bounce Back Loan Scheme
‘Deadweight loss’
3.13 The Scheme offers a 100% guarantee to lenders whereas CBILS only offers
80% (Figure 1). Scheme rules allow borrowers to use the loans to pay down
existing borrowing – so they may choose to repay a higher-interest loan, which
will reduce the potential profits of that lender, while de-risking its balance sheet
slightly. If a loan has been extended to a borrower under CBILS and subsequently
been refinanced with a Scheme loan, it means that government needlessly
assumes the higher guarantee when the risk could reasonably be borne by
the lender. The benefit of this is that the borrower will be making lower interest
payments. The Bank and the Department raised a concern about deadweight loss
when seeking the Ministerial Direction. As of August 2020, around 5,000 loans
worth £183.9 million have been used to refinance loans which had already been
awarded under CBILS. According to HM Treasury, this may be an underestimate
as a number of lenders have been unable to provide details on refinancing.

Investigation into the Bounce Back Loan Scheme Appendix One 43
Appendix One
Our investigative approach
Scope
1
We investigated the Bounce Back Loan Scheme (the Scheme).
The report covers:
•
how the Scheme was developed, what it aims to achieve and
how it is managed (Part One);
•
the Scheme details and how it performed to date (Part Two); and
•
the main Scheme risks (Part Three).
2
The investigation is non-evaluative. We have not assessed the value
for money of the Scheme.
Methods
3
In examining these issues, we drew on a variety of evidence sources. We:
•
reviewed key documents in relation to the design, implementation and
performance of the scheme by HM Treasury, Department for Business,
Energy & Industrial Strategy (the Department) and the British Business
Bank (the Bank);
•
reviewed key documents in relation to the Scheme and agreements
with lenders;
•
undertook a survey of 15 lenders under the Scheme. The survey covered
application processing times, number of new customer loans, use of
proceeds and wider lender feedback. Of these, we received 10 responses.
The responses include four of the five largest UK lenders;
•
reviewed key documents in relation to similar international schemes;
•
held interviews with HM Treasury, the Department and the Bank; and
•
drew on discussions with external parties such as the Financial Conduct
Authority, the Financial Ombudsman Service and other industry and
customer representative groups.

44 Appendix One Investigation into the Bounce Back Loan Scheme
Quantitative analysis
4
We analysed Scheme performance data provided by both HM Treasury and
the Bank. HM Treasury collects aggregate performance data from the start of
the Scheme. The Bank gathers data from the point by which its collection system
(the portal) allowed automated input by the lender (mid-June). The Bank collects
the data to administer the guarantees. These two datasets differ for two reasons:
•
what data are collected – HM Treasury collects summary-level data of
loan application and loan applicants, whereas the Bank has data on a
loan‑by-loan basis; and
•
when the data are collected – HM Treasury collects the data on a daily
basis from lenders. The Bank data allow automated input directly by
lenders. As this was only in place by mid-June, it meant that lenders have
to retroactively update the portal with lending activity as well as gathering
information on new lending.
5
As a result, not all figures in our report reconcile. HM Treasury data used in
our report have a cut-off date of 6 September; on this date 1,222,548 loans have
been approved with an aggregate value of £36.9 billion. These data were used
in Figure 7 and 8 when illustrating the overall loan issuance over time, as well as
the approval rates. The Bank data have a cut-off date of 7 September; on this
date 1,157,946 loans have been issued to borrowers with an aggregate value of
£35.1 billion.
6
We have not audited the underlying loan-level data owing to confidentiality
issues. The data contain sensitive personal and commercial details. We relied on
the summary data provided by HM Treasury and the Bank. HM Treasury and the
Bank, in turn, rely on the information provided by the lenders.
7
The Bank’s preliminary cost assessment is based on a summary spreadsheet
of the anticipated annual cost out to 2024-25, supplied to us on 23 September.
The Bank made this assessment in September 2020. The assessment is based
on the Bank’s estimates of all COVID-19 business loan support schemes.
The Bank allocated the total costs to the relevant scheme, expense category
and year. The allocation methods vary depending on the cost items and mainly
use volume, value, or number of schemes. We have not audited the underlying
operational expenditure data. We have verified the calculations in the spreadsheet
and conducted limited checks on the allocation of the cost between the schemes.

Investigation into the Bounce Back Loan Scheme Appendix Two 45
Appendix Two
Regional distribution of loans
1
Figure 17 on pages 46 and 47.

46 Appendix Two Investigation into the Bounce Back Loan Scheme
Figure 17
Breakdown of the number and value of loans provided under the Bounce Back Loan Scheme
(the Scheme), by region
Under the Scheme, businesses across the UK received loans
Notes
1
Data exclude 1,551 loans with a total value of £47,999,023 as the location information was not provided by the applicant.
2
Regions are based on Level 3 Nomenclature of Territorial Units for Statistics (NUTS) codes of the UK.
3
Data as at 7 September 2020.
Source: National Audit Offi ce Analysis of British Business Bank data
Number of loans
> 16,000
12,000 – 15,999
8,000 – 11,999
4,000 – 7,999
< 3,999
London

Investigation into the Bounce Back Loan Scheme Appendix Two 47
Value of loans
> £400,000,000
£300,000,000 – £399,999,999
£200,000,000 – £299,999,999
£100,000,000 – £199,999,999
< £99,999,999
London

CORRECTION SLIP
Title: Investigation into the Bounce Back Loan Scheme
Session: 2019–2021
HC 860
ISBN: 978-1-78604-337-5
Ordered by the House of Commons to be printed 5 October 2020
Correction One:
Paragraph 2.8 (page 27) of the report was produced in error, ‘more than’ should
have been deleted.
The paragraph currently reads:
2.8 More than three-quarters of the total support was provided to private
limited companies, which received £26.5 billion from 793,000 loans. Sole traders
received £6.4 billion from 297,000 loans, representing almost one-fifth of the
total support (Figure 11 on page 30). More than one-third of bounce back loans
were received by businesses that have been operating for more than four years
The paragraph should read:
2.8 Three-quarters of the total support was provided to private limited
companies, which received £26.5 billion from 793,000 loans. Sole traders
received £6.4 billion from 297,000 loans, representing almost one-fifth of the
total support (Figure 11 on page 30). More than one-third of bounce back loans
were received by businesses that have been operating for more than four years.
BACK

Correction Two:
Figure 13 (page 32) an error was produced in the subtitle, ‘almost’ should have read
‘more than’.
The figure currently reads:
0
5
10
15
20
25
30
35
40
45
Real estate,
professional services
and support activities
Wholesale and retail trade
Construction
Accommodation and
food service activities
Transport, storage
and communication
Manufacturing
Recreational, personal
and community
service activities
Health and social work
Agriculture, forestry
and ﬁshing
Education
Electricity, gas and
water supply
Mining and quarrying
Public administration
and defence
Percentage (%)
Industry sector
24.2
18.7
16.1
6.6
8.9
9.1
9.6
8.9
4.1
4.0
7.6
10.0
2.9
1.6
2.0
0.7
1.8
0.6
0.1
0.4
0.1
6.1
5.9
6.0
2.6
40.5
Figure 13
A comparison of small- and medium-sized enterprise (SME) borrowing market share between
pre-COVID-19 levels and under the Bounce Back Loan Scheme (the Scheme), by industry sector
The wholesale and retail trade sector’s share of borrowing is almost twice as much under the Scheme than prior to the COVID-19 outbreak
Scheme market share (%)
Pre-COVID-19 SME borrowing market share (%)

The figure should read:
0
5
10
15
20
25
30
35
40
45
Real estate,
professional services
and support activities
Wholesale and retail trade
Construction
Accommodation and
food service activities
Transport, storage
and communication
Manufacturing
Recreational, personal
and community
service activities
Health and social work
Agriculture, forestry
and ﬁshing
Education
Electricity, gas and
water supply
Mining and quarrying
Public administration
and defence
Percentage (%)
Industry sector
24.2
18.7
16.1
6.6
8.9
9.1
9.6
8.9
4.1
4.0
7.6
10.0
2.9
1.6
2.0
0.7
1.8
0.6
0.1
0.4
0.1
6.1
5.9
6.0
2.6
40.5
Figure 13
A comparison of small- and medium-sized enterprise (SME) borrowing market share between
pre-COVID-19 levels and under the Bounce Back Loan Scheme (the Scheme), by industry sector
The wholesale and retail trade sector’s share of borrowing is more than twice as much under the Scheme than prior to the
COVID-19 outbreak
Scheme market share (%)
Pre-COVID-19 SME borrowing market share (%)
BACK

Correction Three:
Figure 16 (page 39) an error was produced in the subtitle, 30% should have read 15%, a new sentence
was added at the end of note 3 and note 5 should have been deleted.
The figure currently reads:
Figure 16
Estimated credit and fraud loss rates on the Bounce Back Loan Scheme
(the Scheme)
Expected loss estimates under the Scheme range from 30% to 80%
Estimated credit and fraud loss rate (%)
At scheme launch
Most recent estimate
Minimum
Maximum
Minimum
Maximum
HM Treasury
40
40
N/A
N/A
Department for
Business, Energy &
Industrial Strategy1
30
75
35
60
British Business Bank2
30
50
35
80
Office for
Budget Responsibility3
N/A
N/A
15
60
Notes
1
The Department for Business, Energy & Industrial Strategy’s (the Department’s) latest expectation is based
on the British Business Bank’s (the Bank’s) data and is published in the Department’s 2020 annual report
and accounts.
2
As of 9 September, the Bank’s base scenario is 35%–60%, with a current central estimated loss rate of 45%:
pandemic as expected, mitigation effect, loan scheme design, and wider measures as expected. The downside
scenario is 60%–80%: pandemic longer than expected, mitigation effect smaller than expected.
3
The Offi ce for Budget Responsibility (OBR) assumes a base case of 30%, and upside and downside scenarios
of 15% and 60% depending on the UK’s economic performance.
4
The Scheme was launched on 4 May 2020.
5
The most recent estimates vary by date: the Department’s estimate was published in September, the Bank’s
was produced in June and the OBR’s was published in July.
6
The estimates of credit and fraud losses have been made before 24 September 2020 and, as such, do not
refl ect changes to the Scheme announced by the Chancellor of the Exchequer.
Source: British Business Bank, the Department for Business, Energy & Industrial Strategy, HM Treasury,
and the Offi ce for Budget Responsibility

The figure should read:
Figure 16
Estimated credit and fraud loss rates on the Bounce Back Loan Scheme
(the Scheme)
Expected loss estimates under the Scheme range from 15% to 80%
Estimated credit and fraud loss rate (%)
At scheme launch
Most recent estimate
Minimum
Maximum
Minimum
Maximum
HM Treasury
40
40
N/A
N/A
Department for
Business, Energy &
Industrial Strategy1
30
75
35
60
British Business Bank2
30
50
35
80
Office for
Budget Responsibility3
N/A
N/A
15
60
Notes
1
The Department for Business, Energy & Industrial Strategy’s (the Department’s) latest expectation is based
on the British Business Bank’s (the Bank’s) data and is published in the Department’s 2020 annual report
and accounts.
2
As of 9 September, the Bank’s base scenario is 35%–60%, with a current central estimated loss rate of 45%:
pandemic as expected, mitigation effect, loan scheme design, and wider measures as expected. The downside
scenario is 60%–80%: pandemic longer than expected, mitigation effect smaller than expected.
3
The Offi ce for Budget Responsibility (OBR) assumes a base case of 30%, and upside and downside scenarios
of 15% and 60% depending on the UK’s economic performance. These estimates were published in July.
4
The Scheme was launched on 4 May 2020.
5
The estimates of credit and fraud losses have been made before 24 September 2020 and, as such, do not
refl ect changes to the Scheme announced by the Chancellor of the Exchequer.
Source: British Business Bank, the Department for Business, Energy & Industrial Strategy, HM Treasury,
and the Offi ce for Budget Responsibility
Date of correction: 12 October 2020
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