Pay As You Grow: New Bounce Back Loan repayment options for 1.5m SME borrowers

By Oliver Smith on Monday 8 February 2021

Alternative Lending

Changes will affect some £45bn of small business debt that has accumulated since May 2020.

Pay As You Grow: New Bounce Back Loan repayment options for 1.5m SME borrowers
Image source: The Treasury.

Over a million small businesses will be offered more flexible options to manage the repayments on their government-backed Bounce Back Loans.

The changes, first announced by Chancellor Rishi Sunak last September, include a substantial term change which will stretch the repayments on these loans of up to £50,000 from the current six years to 10 years.

It comes as fears over business’s ability to repay this debt pile have grown among politicians, bankers and economists, and as the first repayments on Bounce Back Loans are due to begin in May 2021.

Initially some suspected that these loans, which were awarded without checking applicants’ affordability, would see defaults of up to 20 per cent.

In the last few days Sam Woods, CEO of the Prudential Regulation Authority, told a London School of Economics webinar that the figure could be as high as 50 per cent.

Other changes being implemented by the British Business Bank include three six month interest-only periods which can be taken whenever a company requests, and an additional six month repayment holiday.

All three options (term extension, interest-only periods, and repayment holiday) can be taken individually or in combination with each other (e.g. a company could opt for a term extension, a six month repayment holiday, followed by 18-months of interest-only repayments).

“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,” said Richard Bearman, managing director of small business lending at the British Business Bank.

“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.”

Undoubtedly these changes will give businesses more time to recover from the pandemic before they’re expected to start repaying their debt, and in turn, will positively impact defaults.

How substantial that impact is and how many businesses opt to take advantage of these new options, we’ll have to wait and see over the next months and years.

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