Many countries have introduced programmes to help distribute relief funds and emergency loans to help businesses stay afloat during the crisis.
While these programmes are critical to bolstering economic stability, they were also created quickly and under pressure. One inadvertent result has been an emerging uncertainty among financial institutions about the long-term outlook for how relief loans will be valued, governed and repaid.
In addition to COVID-19 financial support grants, the UK government has introduced four loan schemes designed to stabilise businesses experiencing cash flow disruptions. These include the Bank of England’s Corporate COVID Financing Facility (CCFF), Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS), and Coronavirus Large Business Interruption Loan Scheme (CLBILS). While each of these programmes have unique borrower eligibility requirements, lender accreditation parameters, and loan limitations, they provide banks with a government-backed partial, or in the case of the BBLS full, guarantee against the outstanding balance of defaulted loans. They also include payment to cover the first 12 months of interest and other lender-levied fees.
This paper will discuss key risks that are beginning to emerge as consequences of these loan schemes. It will cover the grey areas within their stipulations, and how misinterpretation of the government’s requirements may subject financial institutions to unexpected issues. The authors will also share proactive steps banks can take to reduce these exposures, including pre-emptive review of loans issued to date, and remediation of gaps and inconsistencies.