FCA highlights collections process for SMEs defaulting on BBLs

Among various predictions of businesses defaulting on loans under the Coronavirus Business Interruption and Bounce Back Loan schemes, the FCA has sought to make expectations on collections standards clear, even where lending to SMEs falls outside its remit. The Office for Budget Responsibility has estimated likely rates of arrears through these schemes at around 40%.

In its Perimeter Report 2019/20 published in September, the FCA stated that UK SMEs came to rely on borrowing from both the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS), when many firms were forced to halt operations.

The regulator said that while SME lending had been a “longstanding perimeter issue as our regulation only covers lending of £25,000 and under to sole traders and relevant recipients of credits”, the current climate could “expose more SMEs to unfair treatment”.

The report put the amount lent in the second quarter of 2020 under the scheme at about £48bn, prompting the FCA to state that “the scale of potential harm that may arise in the future has resurfaced debate about the FCA’s perimeter on SME lending”.

Lending under both schemes is “largely unregulated”, it warned.

The report added: “We have worked closely with the government as they implemented these schemes and will continue to work with the Treasury as it develops the approaches to collections and recovery activities relating to scheme loans.

“It is in the interest of small businesses, lenders, government and regulators alike to have the clearest possible approach to collections of these loans.”