Bounce Back Loan borrowers offered greater flexibility to repay with Pay as You Grow

The British Business Bank has announced further details of its Pay As You Grow (PAYG) programme, which helps smaller businesses in the UK that have taken out a Covid-19 emergency bounce Back Loan to manage their cashflow and have a better chance of getting back to growth.

Originally announced by chancellor Rishi Sunak in his Winter Economy Plan in September 2020, the scheme will enable businesses who have started repaying their Bounce Back Loans to:

  • request an extension of their loan term to 10 years from six, at the same 2.5% fixed interest rate
  • reduce their monthly repayments for six months by paying interest only — available up to three times during the term of their Bounce Back Loan
  • take a repayment holiday for up to six months — available once during the term of their Bounce Back Loan.

Borrowers can use these options individually or in combination with each other, and remain responsible for repaying their Bounce Back Loan and are fully liable for the debt.

Clients should be aware that they will pay more interest overall if they use one or more of these options, and that the length of the loan will increase in line with any repayment holidays taken.

Lenders will start to communicate PAYG options to BBLS borrowers three months before repayments commence and will advise customers about how their payment profiles may change according to their choices under the scheme.

Borrowers are recommended to wait until they are directly contacted and informed by their finance providers before enquiring about the scheme.

Businesses first began to receive BBLS loans in May 2020 and the first repayments will become due from May 2021 onwards.

Richard Bearman, managing director for small business lending at British Business Bank, said: “PAYG will provide tangible benefits to Bounce Back Loan recipients, many of whom may have accessed the BBLS to borrow money for their business for the first time.”

Business secretary Kwasi Kwarteng added: “The comprehensive and generous financial support package we have delivered across the UK has protected jobs, saved businesses and kept local economies on the move. 

“While our vaccine rollout is moving at an incredible pace and the end is in sight, we know times are still tough for many companies and extra support is needed.

“These flexible repayment options will give businesses the time they need to recover from the pandemic before paying back loans, giving them the breathing space and confidence to build back better.”

Martine Catton, chief operating officer at Just Cashflow, said that while the support was timely and provided “much-needed breathing space” for the SME community, the industry must not lose sight that there are many businesses in financial distress.

“We need to be careful not to encourage SMEs to see this type of support as a lifeline and then not get the much-needed financial advice they need. 

“We need to avoid kicking the can down the road as they may invest more of their own money to survive, but it’s incumbent on lenders and the government not to allow business owners to do this, as they won’t thank us later. 

“Business owners will welcome this news, but are still facing the key questions on how to repay all the new debt: what drag will it have on their businesses and where will they get the finance they need to get their businesses growing again?”

Stephen Pegge, managing director of commercial finance at UK Finance, commented: “The UK’s banking and finance industry is delivering an unprecedented level of support to businesses across the UK to help them navigate the crisis and set them up for recovery. 

“Government-backed loans are just one part of the industry’s wider support for businesses, alongside commercial lending, capital repayment holidays, extended overdrafts and asset-based finance — meaning there is a range of help available for any firm that needs it.”

Martin McTague, vice-chair at FSB National, stated: “With the first Bounce Back Loan repayments hitting against a backdrop of continued restrictions, it’s critical that small firms are aware of all their options. 

“As such, it’s good to see efforts to expand understanding of and access to PAYG plans. 

“Ultimately, Bounce Back facilities have been made possible by the government as part of efforts to see us through a national crisis. 

“Lenders must be mindful of this fact and treat borrowers accordingly over the months ahead.”

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