Chancellor announces Pay as You Grow flexible repayment options

Businesses that took out government-backed Bounce Back Loans to get through Covid-19 will now have greater flexibility to repay their loans, the government has announced.

  • Bounce Back Loan borrowers will now have the option to tailor payments according to their individual circumstances
  • Option to delay all repayments for a further six months

The Chancellor’s Pay as You Grow repayment flexibilities now include the option to delay all repayments for a further six months, meaning businesses can choose to make no payments on their loans until 18 months after they originally took them out. The option to pause repayments will now be available to all from their first repayment, rather than after six repayments have been made.

Pay as You Grow will also enable borrowers to extend the length of their loans from six to ten years (reducing monthly repayments by almost half) and make interest-only payments for six months, in order to tailor their repayment schedule to suit their individual circumstances.

These Pay as You Grow options will be available to more than 1.4 million businesses which took out a total of nearly £45 billion through the Bounce Back Loan Scheme.

This is in addition to the government covering the costs of interest for the first year of the loan.

Pay as You Grow’s additional support, first announced by the Chancellor in September, will give borrowers the option to tailor repayments to their individual circumstances. This will provide more time and greater flexibility to repay the loans.

From this week, lenders will begin reaching out to borrowers to provide information on repayment schedules and how to access flexible repayment options.

Lenders will proactively and directly inform their customers of Pay as You Grow, and borrowers should only expect correspondence three months before their first repayments are due.

It will provide businesses with the following options:

  1. Extend the length of the loan from six years to ten
  2. Make interest-only payments for six months, with the option to use this up to three times throughout the loan
  3. Pause repayments entirely for up to six months

Further Information

  • The British Business Bank runs the Bounce Back Loan Scheme.
  • The government has made clear that lenders are expected to offer PAYG options to all borrowers under the Bounce Back Loan Scheme.
  • Following discussions with lenders, all borrowers should receive identical information on PAYG being offered.
  • The Financial Conduct Authority’s conduct rules require lenders to show due consideration and appropriate forbearance to borrowers in difficulty.
  • Under the Bounce Back Loan Scheme, no repayments or interest are due from the borrower during the first 12 months of the loan term.

About the Bounce Back Loan Scheme

The scheme helps small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000.

The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.

The scheme is open to applications until 31 March 2021.

If you already have a Bounce Back Loan but borrowed less than you were entitled to, you can top up your existing loan to your maximum amount. You must request the top-up by 31 March 2021.

How to apply for a Bounce Back Loan

There are 29 lenders participating in the scheme including many of the main retail banks. You can approach a suitable lender yourself via the lender’s website. The lender will ask you to fill in a short online application form and self-declare that you are eligible.

The lender will decide whether to offer you a loan or another type of finance and you’ll be responsible for repaying 100% of the amount borrowed.

If you require any assistance in making your applications, please contact your usual Beavis Morgan Client Partner. Alternatively, please contact Karl Holmes or John Weeden at Cadence Advisory, a Beavis Morgan group company.