The Sunday Times has been highlighting issues with the Government’s £150 million Start-up loans scheme, which is administered through the Start-up Loans Company chaired by James Caan, a former Dragons’ Den judge.
Information on the company’s website is minimal unless the user is a potential applicant and goes through the registration process, but using a disclosure of information request the paper has discovered that initially default rates of up to 40% had been expected, but were anticipated to be between 30-35% by the end of the scheme in 2018.
Under the scheme start-ups can borrow up to £25,000 at an APR of 6% which must be repaid over a five-year period. According to both Government and the Loan Co websites these loans are unsecured.
The new businesses also receive mentoring as part of the package, which matches their applications with a “delivery partner” with whom the loan terms have to be agreed.
At the moment around £95 million of the £150 million pot has been lent and of this calculations are that repayments on around a fifth of that money are in arrears, leading to fears that the debts may have to be written off.
Most recently, the paper has discovered, up to 3,000 of the current 18,000 recipients have not been given access to a mentor.
It quotes Mr Caan as saying that mentoring was “encouraged but not compulsory” and that the company did follow up on those recipients who were not using it. He has also said that every effort was made to recover funds.
While, of course, not every new business will be successful, this does raise questions about the anticipated level of failure and the viability of this scheme.
We understand that a criteria for loans under the scheme is the need for a personal guarantee. If this is the case, are we to expect a large number of bankruptcies in the next couple of years? Do get in touch if you have a Start-up Loan under the scheme.