BBLs - is the government's guarantee really 100% ?

[Talay]

It is not uncommon for smaller companies to have director guarantees which include any future borrowing in their terms and if a director has multiple companies, then they may also have a cross company debenture, effectively allowing the lender to approach any of the companies for repayment.

If these were in place before the announcement of BBLs, where does the government's guarantee sit in relation to the lender being able to exercise existing guarantees or approach other companies for repayment, if a company found itself in difficulty ?

I don't seem to be able to find the answer to this anywhere, not even close. I'll reach out to the British Business Bank to try to get some clarity but I'd welcome any thoughts.

For reference, this is what the BBB says:

"The scheme gave the lender a full (100%) government-backed guarantee against the outstanding balance of the facility (both capital and interest).

The borrower always remained fully liable for the debt."

Source: https://www.british-business-bank.c...-interruption-loan-schemes/bounce-back-loans/

I would, normally, interpret that to mean that the borrower is singular, as in a single company and whilst that single borrower company remained liable for the debt, the government was then acting to guarantee it 100% to the lender.

 

[JEREMY HAWKE]

The loan s back by the government and they will repay the bank after all the normal recovery avenues have been used .
So all the normal t and Cs apply

 

[Mark T Jones]

A continuing guarantee or debenture won't cover BBL

 

[Marco1000]

The banks will go through a watered down "recovery" of the loans. But there is no personal guarantee and they can't touch your home or car. They won't pursue serious court action or other serious action i.e sending debt collectors round and they have to treat everybody the same across the board. The only thing that will have some sort of affect on those who default will be a default or missed payment on their credit file.

I've seen comments on Twitter such as "surely the government will make the banks recover the money and will do everything to avoid paying the guarantee. The government won't let them get away with it, once they pay the banks the guarantee, they will go after the customer/business".

I don't think that's possible or plausible. These were bounce back loans meant to cover the first lockdown and the reopening of the first lockdown. It was government decisions to enforce further lockdowns and restrictions, and when the loans were taken out, nobody envisioned that we would continue to face restrictions which made trading virtually impossible for some even a year later. Putting serious fraud aside, the government will need to pay up or write off the defaulted loans and leave it at that. If anyone has a different viewpoint, I'd be interested to hear it.

 

[Mark T Jones]

The banks will go through a watered down "recovery" of the loans. But there is no personal guarantee and they can't touch your home or car. They won't pursue serious court action or other serious action i.e sending debt collectors round and they have to treat everybody the same across the board. The only thing that will have some sort of affect on those who default will be a default or missed payment on their credit file.

I've seen comments on Twitter such as "surely the government will make the banks recover the money and will do everything to avoid paying the guarantee. The government won't let them get away with it, once they pay the banks the guarantee, they will go after the customer/business".

I don't think that's possible or plausible. These were bounce back loans meant to cover the first lockdown and the reopening of the first lockdown. It was government decisions to enforce further lockdowns and restrictions, and when the loans were taken out, nobody envisioned that we would continue to face restrictions which made trading virtually impossible for some even a year later. Putting serious fraud aside, the government will need to pay up or write off the defaulted loans and leave it at that. If anyone has a different viewpoint, I'd be interested to hear it.

They are jokingly dubbed in the industry as a 'grant with a repayment option'.

Despite various pres releases about how hard recovery will be, the sheer scale of things suggest that the average micro-business won't be pursued very hard

 

[Talay]

Thanks for the responses. Still no luck from other sources so I thought I'd clarify.

Normal route

1. Company cannot repay
2. No guarantees
3. Government pays

Cross debenture route

1. Company cannot pay
2. No guarantees
3. Cross company debenture for a company which does have assets
4. Government pays

We have a lot of these BBLs in non group companies and all for the maximum £50k each. Decent chunk of change of course and most are fine to repay, just using it as a cheap source of finance.

However, we have two smaller entities which we were going to absorb but the issue of the BBLs means that it is a £100k hit to the other companies if we do so and the accountancy advice is to let these companies go.

However, if the cross company debenture ranks above the government's BBL guarantee then:

1. Someone in the other companies is going to have to pay and critically
2. That means the government was or is not guaranteeing these BBLs 100% and is acting only as a guarantor of last resort.

We're probably going to go for a legal opinion but the bank hasn't come back with their answer, which we hope is that the cross debenture doesn't rank above the government's guarantee and makes it a moot point.

 

[Aniela]

The banks will go through a watered down "recovery" of the loans. But there is no personal guarantee and they can't touch your home or car. They won't pursue serious court action or other serious action i.e sending debt collectors round and they have to treat everybody the same across the board. The only thing that will have some sort of affect on those who default will be a default or missed payment on their credit file.

I've seen comments on Twitter such as "surely the government will make the banks recover the money and will do everything to avoid paying the guarantee. The government won't let them get away with it, once they pay the banks the guarantee, they will go after the customer/business".

I don't think that's possible or plausible. These were bounce back loans meant to cover the first lockdown and the reopening of the first lockdown. It was government decisions to enforce further lockdowns and restrictions, and when the loans were taken out, nobody envisioned that we would continue to face restrictions which made trading virtually impossible for some even a year later. Putting serious fraud aside, the government will need to pay up or write off the defaulted loans and leave it at that. If anyone has a different viewpoint, I'd be interested to hear it.

I'm intrigued to see if any lenders do use debt collectors. They are required to try and recover debts, so seems logical in that regard. The costs the lender incurs to try and recover are repaid to the lender, so they don't lose out money-wise on that.

They would likely not want to pursue debt collectors due to reputation damage but will be interesting to know if they're required to. (Likely not? Would seem unfair of the government to force that sort of likely brand reputation damage.)

There is some sort of official protocol/steps they've officially been provided, that they have to follow but this hasn't been made public as far as I'm aware. Doubt it will either for fraud prevention.

In regards to the government going after the money. It will be interesting to see how that plays out. In BBL at least, they used very specific wording of 'The Borrower remains 100% liable for the debt' - Which implies that just because the guarantee with the lender is covered, it doesn't mean that once that's wiped off, you can walk away from the debt.

Although, I don't see the government personally going after it. Don't think they have the skills/ability to, without making a farce of it.

I've not actually seen any stories/information of anyone unable to pay the BBL yet. Curious to see what they say of the process.

 

[Mr D]

I'm intrigued to see if any lenders do use debt collectors. They are required to try and recover debts, so seems logical in that regard. The costs the lender incurs to try and recover are repaid to the lender, so they don't lose out money-wise on that.

They would likely not want to pursue debt collectors due to reputation damage but will be interesting to know if they're required to. (Likely not? Would seem unfair of the government to force that sort of likely brand reputation damage.)

There is some sort of official protocol/steps they've officially been provided, that they have to follow but this hasn't been made public as far as I'm aware. Doubt it will either for fraud prevention.

In regards to the government going after the money. It will be interesting to see how that plays out. In BBL at least, they used very specific wording of 'The Borrower remains 100% liable for the debt' - Which implies that just because the guarantee with the lender is covered, it doesn't mean that once that's wiped off, you can walk away from the debt.

Although, I don't see the government personally going after it. Don't think they have the skills/ability to, without making a farce of it.

I've not actually seen any stories/information of anyone unable to pay the BBL yet. Curious to see what they say of the process.

If government was to ever go after the debts, they wouldn't need to do it themselves. Government departments will already have arrangements with debt collection companies for collecting debts.

Agree though, unlikely government will chase.
A future government, not bound by previous governments, could...
Be easy enough to spin it as making those who benefitted from the lockdown pay their fair share.

 

[Chris Ashdown]

I think your kidding yourself if you don't think the banks will do everything they can to get their money or a percentage of it back
Just tell their shareholders we have £X millions in bad debt but not bothering to chase it up as we are nice people
And the bank of England says "thats alright mate" dont worry about it

 

[Aniela]

I think your kidding yourself if you don't think the banks will do everything they can to get their money or a percentage of it back
Just tell their shareholders we have £X millions in bad debt but not bothering to chase it up as we are nice people
And the bank of England says "thats alright mate" dont worry about it

That wouldn't happen as if I remember correctly, BBL's don't get included in lenders financials like standard loans, due to the guarantee and the government earmarking it differently.

I guess because it's not a true debt to the lenders. The BBL is guaranteed and all costs for recovery are returned too.

The government are going to have to relax debt chasing to some regards, as the banks would just sue them; likely successfully. The reputation fallout by lenders if they were forced to use standard heavy-hitting debt collection would be unthinkable.

It would be unfair for the government to force a lenders hand to do that, after the lenders ultimately helped keep the country afloat. (In theory.) In the sense of, there was no way the government could do what the lenders did.

 

[Mr D]

That wouldn't happen as if I remember correctly, BBL's don't get included in lenders financials like standard loans, due to the guarantee and the government earmarking it differently.

I guess because it's not a true debt to the lenders. The BBL is guaranteed and all costs for recovery are returned too.

The government are going to have to relax debt chasing to some regards, as the banks would just sue them; likely successfully. The reputation fallout by lenders if they were forced to use standard heavy-hitting debt collection would be unthinkable.

It would be unfair for the government to force a lenders hand to do that, after the lenders ultimately helped keep the country afloat. (In theory.) In the sense of, there was no way the government could do what the lenders did.

Without 100% government guarantee the banks were reluctant to risk their money. They'd lend to businesses that should be able to pay back - such as food retailers etc!
Those that had to shut down, those whose work was suddenly a lot less due to lockdown .... those businesses remember had little or no chance of paying back money. Least in the short term and risky in the long term.
Hence the need for the BBL.

Far from perfect, open to fraud, open to abuse, and far riskier than the banks would have done themselves. But fairly quick, large sum and initially at least apparently guaranteed to get it.
In no way looking like it matches the banks preferred risk model.

I can understand if the government requires the banks to try all normal measures of recovery before they pay out. Amongst other benefits to the government it also delays payment to the banks for a year or two.
Time enough to sort out the financing - a budget or two to sort out.
Next budget is I think too close to have much, if any, of the BBL repayment by the government. The one after probably will have a few. Drug dealers, money launderers, people with their head in the sand etc.

 

[Karimbo]

the guarantee isn't to the borrower, the guarantee is to the lender. the government will guaantee the banks won't be out of pocket and will be bailed out. Not guaranteeing borrower will pay. Two different things, normal recovery process will take place and if there's no assets to recover then government will pay.

the interesting thing would be to know if it means banks will sell on the debt or not. during the 2008 crisis i remember a few friends with business loans who were paying on time, who were asked to repay early. Pay it all back immediately, then the debt was sold off to third parties after they couldn't.

Will the government gurantee prevent that, or will the guarantee transfer to any third parties who can then do the usual collections process and then finally bank in on the government guarantee?

 

[gpietersz]

They are jokingly dubbed in the industry as a 'grant with a repayment option'.

Despite various pres releases about how hard recovery will be, the sheer scale of things suggest that the average micro-business won't be pursued very hard

Surely if the businesses keep operating and have their main business account with the BBL lender they can just take the repayments from the main business account?

Obviously there are ways around that, would that not be fraudulent if done to avoid repaying the loan?

 

[Mark T Jones]

Surely if the businesses keep operating and have their main business account with the BBL lender they can just take the repayments from the main business account?

Obviously there are ways around that, would that not be fraudulent if done to avoid repaying the loan?

The caveat there is 'provided there are funds available'. Remembering that the primary function of BBL was to keep the business afloat during lockdown- many honest borrowers will have done just that and will struggle to pay

Fraud is a team that is freely bandied about. In reality it is technical and requires a high degree of forensic evidence to prove.

Fortunately there are big departments contacted to BBB to do just that- as that loony who pretends to have been missold will no doubt discover

 

[gpietersz]

The caveat there is 'provided there are funds available'. Remembering that the primary function of BBL was to keep the business afloat during lockdown- many honest borrowers will have done just that and will struggle to pay

Of course, and obviously people running businesses that do not recover that borrowed honestly will be genuinely unable to pay should not be punished for that. What I have more in mind are people like the "missold loony" exploiting the banks making less effort to recover the debt because its easier to rely on the government guarantee to get the money back.

I take your point about the difficulties of proving fraud (as in the criminal offence - I do not know much about it, but its fairly obvious that fraud proscecutions are rare and lengthy), but I hope one way or another people who can repay who avoid doing so are, at the very least, made to pay up.

Fortunately there are big departments contacted to BBB to do just that- as that loony who pretends to have been missold will no doubt discover

That is good the hear.