BUSINESSES could default on more than £28bn-worth of government pandemic loans, according to accountants Henderson Loggie.
More than 1.5m UK businesses claimed £47.4bn in bounce-back loans from May 2020.
The government provided the guarantees for the self-certified loans and paid the interest for the first year.
Now the Dundee-based firm is warning company directors who may be concerned about meeting repayments to seek professional advice.
And they warn that government fraud investigators are already closing in on companies suspected of abusing the financial lifeline.
Christine Rolland, forensic accounting director at Henderson Loggie, said: “The removal of most credit and affordability checks meant that the scheme was ripe for target by cheats.”
She said businesses could access to loans of up to 25% of turnover to a maximum of £50,000 with practically no scrutiny of its ability to meet its obligations.
Rolland added that a National Audit Office investigation in October 2020 put the potential default rate on bounce-back loan repayments at anything between £16.6bn and £28.4bn.
“Opportunities for fraud ranged from organised crime hijacking or impersonating legitimate businesses to individuals using dormant companies to apply for loans,” said Rolland.
“Business owners could also self-certify to a higher level of turnover to receive the maximum loan available.”
Rolland said that initially there was no system in place for the banks to prevent duplicate applications across lenders.
She said: “It has emerged that businesses broke rules by having both a Bounce Back Loan and a Coronavirus Business Interruption Loan.”
Many businesses appear to have been unaware that they weren’t supposed to have both and with no real system in place for the banks to cross check, she said.
Shona Campbell, Business Recovery and Insolvency partner at Henderson Loggie, said: “Struggling businesses that enter insolvency that have bounce-back loans obtained legitimately and used the monies in a proper manner will see those loans repaid by the government under the guarantee scheme without any personal liability for directors.
“Businesses that cannot afford to repay bounce back loans should seek early advice from an insolvency practitioner to ensure they fully understand the options available to them.
“By taking control, directors can avoid continued stress until another party such as a creditor or the Insolvency Service takes action and matters are taken out of business owners’ hands.”
A director was recently disqualified by the Insolvency Service for six years after obtaining a £25,000 bounce-back loan all the while knowing that her company was insolvent.
Two companies have been wound up in the High Court after receiving, between them, £130,000 in business grants from local authorities and £100,000 of bounce- back loans, although neither had ever traded.