Businesses are to be given more time to make the first repayment on government support loans in a move Chancellor Rishi Sunak said said was being made to give firms more “breathing space”.
In September, the Treasury announced “pay as you grow” flexible terms to 1.4m firms that took out £45bn worth of “bounce back” loans, which were a lifeline to many as profits tumbled due to coronavirus restrictions.
This week, he gave them the option of paying the total sum back over 10 years rather than six, allowing them to choose to pay only the 2.5 per cent interest on the loans and take a repayment holiday for up to six months.
Business Secretary Kwasi Kwarteng described them as a “comprehensive and generous financial support package” to protect jobs, save businesses and keep 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,” he said. “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.”
As the outlook for many businesses remains challenging, the flexibility of Pay As You Grow will help smaller businesses manage their cash flow and repayments
The moves were broadly welcome by the banking and finance community. Richard Bearman, Managing Director, Small Business Lending at the British Business Bank, said: “Pay As You Grow will provide tangible benefits to Bounce Back Loan recipients, many of whom may have accessed the Bounce Back Loan Scheme to borrow money for their business for the first time.
“The scheme offers greater flexibility to businesses who may need flexibility in paying off their Bounce Back Loan and enables them to manage their repayments more effectively.”
Stephen Pegge, Managing Director of Commercial Finance at UK Finance, said: “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. Nearly 1.5 million businesses have received a Bounce Back Loan (BBL) since the scheme launched in May last year.
“As the outlook for many businesses remains challenging, the flexibility of Pay As You Grow will help smaller businesses manage their cash flow and repayments. Lenders will be contacting BBL borrowers in advance of their first payments to outline their options.
Dr Adam Marshall, Director General of the British Chambers of Commerce, called the loan scheme “an important lifeline” for many small businesses during the pandemic and the changes had a “crucial role to play in providing firms . . . much-needed headroom to manage their repayments through this continued economic storm”.
These should help many small firms to keep debts manageable as they drive our recovery from an incredibly deep recession
Rob Straathof, CEO of the embedded business finance platform Liberis, said he supported more flexible loan repayment terms, adding: “This move will surely be received positively by those SMEs struggling to start repayment whilst the UK economy remains in lockdown.”
The Chancellor, he added, should consider further support with flexible payments based on SME revenues. Based on Liberis’ data over more than a decade providing SME financing solutions, he said, revenue-based repayment can reduce default expectation by half.
FSB National Vice Chair Martin McTague said: “These should help many small firms to keep debts manageable as they drive our recovery from an incredibly deep recession. 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.”
The Bounce Back Loan Scheme launched on May 4 2020 to provide financial support to businesses losing revenue, and seeing their cashflow disrupted. Since then, the scheme has supported nearly £45bn of loans to 1.5m businesses.
Businesses can apply for a loan from £2,000 up to 25 per cent of their turnover, with a fixed interest rate of 2.5 per cent, meaning all borrowers benefit from the same, affordable rate of interest. The maximum loan amount is £50,000