Throughout the COVID-19 pandemic, the UK government has offered various financial aids for businesses struggling during these uncertain times, as we discussed previously. One such aid is their Bounce Back Loan Scheme (BBLS), which allows small UK businesses to apply for government-backed loans of up to £50,000 with no repayments due for the first 12 months. Since businesses first began to receive the loans in May 2020, over 1.4M firms have taken advantage of the scheme, collectively borrowing approximately £45bn.
But with the first repayments becoming due in May 2021 for early up takers of the loans, and various lockdowns both local and national affecting lots of businesses’ ability to operate over the past year, many companies will still be in weakened positions financially, with remaining uncertainty over when they might start to see business levels getting back to normal – particularly those sectors which rely on international travel.
However, some hope comes in the form of the Chancellor’s announcement earlier in February with details of the new Pay As You Grow options for BBLS borrowers. These options offer businesses greater flexibility in how they make their repayments, offering some relief from pressures faced both now and in future years.
The Pay As You Grow Options
Borrowers under the Bounce Back Loan Scheme will now be able to benefit from three different Pay As You Grow options:
Extended Loan Term
Businesses can apply to extend their loan term from 6 to 10 years, at the same fixed interest rate of 2.5%. This would effectively almost halve their monthly repayments
Temporarily Reducing Repayments
Firms can choose to reduce their repayments to paying interest only for a period of 6 months. This option is available for borrowers to use up to three times over the term of their loan.
Companies can take a repayment holiday, allowing them to pause repayments completely for up to 6 months. This option is available for borrowers to use once over the term of their loan
All three of these Pay As You Grow options will be available to a business as soon as their repayments are due to start and any combination of the options can be used by borrowers. For example, a repayment holiday could be used immediately, effectively meaning that company would have no repayments due for the first 18 months of their loan (as opposed to the original 12 months). Previously, the repayment holiday option was only to be available to borrowers after they had already made 6 repayments.
It should be noted, though, that borrowers who take advantage of one or more of these options would end up paying more interest overall, and the length of their loan would increase in line with any repayment holiday taken.
Accessing The Pay As You Grow Options
Loan providers will be proactively informing their borrowers of these Pay As You Grow options up to three months before they are due to start repayments, and have already started to do so. Businesses are therefore advised by the British Business Bank – who run the Bounce Back Loan Scheme – to wait for their lenders to contact them directly, when they will inform businesses of the PAYG options available to them and how their repayment options might change depending on their choices.
The announcement of these new Pay As You Grow repayment options may be vital to the recovery of many small businesses still struggling under the impact of the global pandemic, and the flexibility they offer may be what is needed to stop the Bounce Back Loan itself becoming a barrier to recovery. Unfortunately for some, these measures may still not be enough for them to avoid insolvency, but they will hopefully minimise the risk of this at a time when all businesses are having to react to unprecedented circumstances.
With the Chancellor’s upcoming budget said to provide further support for businesses as Covid restrictions are eased, it is as important as ever that businesses are aware of how these various support options, including PAYG, could affect the decisions they need to take as the support continues to evolve.
The Partners at Elwell Watchorn & Saxton (EWS) are available to provide free initial consultations; whether that is in person, via video conference or by telephone. Please complete our enquiry form and we will be in touch, alternatively, you can find your nearest office here.
EWS is an independent business recovery firm with a collaborative approach and a commitment to finding the right solutions for businesses and individuals with financial challenges. Our reputation and focus on the best quality of service and project delivery means that we are constantly recommended by professionals to work with businesses and individuals that face financial difficulties.