The government introduced the Bounce Back Loan Scheme (BBLS) in May 2020 to help businesses access finance quickly during the Covid-19 pandemic. Businesses that took out these loans will now have more flexibility in relation to their repayment.

The Bounce Back Loan Scheme (BBLS) enabled small and medium-sized businesses to borrow between £2,000 and £50,000 from accredited lenders at short notice to help keep them afloat during the pandemic. Loans were for six years and interest-free for the first 12 months. The government provided lenders with a 100% guarantee for the loan and agreed to pay fees and interest for the first 12 months.

The government later introduced the Bounce Back Loan Scheme Top-Up, which enabled businesses with an existing Bounce Back loan to apply for a top-up if they didn’t take the maximum sum available to them when they initially applied.

More than 1.4 million businesses collectively took out nearly £45bn through the BBLS.

Pay As You Grow scheme

The government has announced that businesses that took out Bounce Back Loans will now be given more flexibility as to how and when these loans are repaid. The Pay As You Grow (PAYG) scheme enables businesses that have started repaying their bounce back loans to:

  • extend their loan term to 10 years at the same fixed interest rate of 2.5% (the loan can never extend beyond 10 years from the original drawdown).
  • reduce their monthly repayments for six months by paying interest only. This option is available up to three times during the term of the loan.
  • take one repayment holiday (in relation to both capital and interest) for up to six months. Please note that while borrowers will not be paying interest in this six-month period, interest will continue to accrue (after the first, interest-free year).

Borrowers can use these options individually or in combination with each other.

Are there any downsides for borrowers?

There are downsides to these measures. The longer the loan period, the more interest will be paid over the life of the loan.

Using Pay As You Grow should not, in principle, affect a business’s ability to obtain finance in the future. Its purpose is to relieve financial pressures before they arise by giving borrowers flexibility in meeting their repayment obligations.

Although using Pay as You Grow will not affect a borrower’s credit rating, it may affect a lender’s credit assessment. Lenders will consider a business’s total debt exposure, including any outstanding Bounce Back Loan.

If a business cannot afford to repay a Bounce Back Loan, providing it’s a limited company or limited liability partnership, there are no personal guarantees. This does not apply for debts incurred by a sole trader or (unlimited) partnership.

Other matters

It must be remembered that the purpose of the loan had to be to give an economic benefit to the business, such as providing working capital. It couldn’t be for personal purposes. If the business is no longer solvent, an insolvency practitioner will look at how the funds were used.

How do businesses access Pay As You Grow?

Lenders will communicate Pay As You Grow (PAYG) options to Bounce Back Loan Scheme borrowers three months before repayments commence (due 12 months after the loan was taken out).

Borrowers can then access PAYG via the bank’s online portals or contact their lender to amend their repayment options.

If you have any queries in relation to Bounce Back Loans, Pay As You Grow or any other Covid-19 support package, please contact us.

Warning: The above is merely general guidance and should not be relied upon as formal advice. The advice we give to each client will depend on their specific circumstances. We suggest you take professional advice before taking any action in relation to the issues discussed above.