Pay-as-you-grow facility set to ease SME cashflow concerns and fuel return to growth

The British Business Bank has revealed further details of the ‘pay-as-you-grow’ (PAYG) facility which enables more flexible repayments for UK SMEs that took out a bounce back loan.

The facility is hoped to help smaller businesses to manage their cashflow and have a better chance of returning to growth after taking out a bounce back loan. Businesses are now able to request a loan term extension, capital repayment holidays and a temporary pause on repayments.

According to the update, businesses who have started repaying their bounce back loans are able to:

• Request a six-10 year extension of their loan term, at the same 2.5% fixed interest rate;
• Reduce monthly repayments for six months at a time for a maximum of three times during the loan term by paying interest only;
• Take a single, six month repayment holiday during the loan term.

The BBB also stated that borrowers are able to use these options individually or in combination with each other, although they will pay more interest overall if they use one or more of these options, and the length of the loan will increase in line with any repayment holidays taken.

Kwasi Kwarteng (pictured above), secretary of state for business, energy and industrial strategy, explained: “The comprehensive financial support package we have delivered across the UK has protected jobs, saved businesses and kept 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. 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.”

The BBB has revealed that lenders are required to explain the PAYG options to borrowers of the bounce back loan scheme three months before repayments are due to begin. Furthermore, lenders will inform customers about PAYG directly, so borrowers should wait until they are contacted by their lender before enquiring about the scheme.

Repayments for the bounce back loans scheme will start becoming due from May 2021 onwards.

Stephen Pegge (pictured above), managing director of commercial finance at UK Finance, added: “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 since the scheme launched in May last year.

“As the outlook for many businesses remains challenging, the flexibility of PAYG will help smaller businesses manage their cash flow and repayments. Government-backed loans are just one part of the industry’s wider support for businesses alongside commercial lending, capital repayment holidays, extended overdrafts and asset-based finance – meaning there is a range of help available for any firm that needs it.”

Martin McTague, national vice chair of FSB, said: “With the first bounce back loan repayments hitting against a backdrop of continued restrictions, it’s critical that small firms are aware of all their options. As such it’s good to see efforts to expand understanding of, and access to, Pay As You Grow plans. 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.”

Since its formation in May 2020, the bounce back loan scheme has supported nearly £45 billion of loans to 1.5 million businesses as of the end of January 2021.

Businesses can apply for a loan from £2,000 up to 25% of their business’ turnover, with a fixed interest rate of 2.5% for the duration of the loan. The maximum loan amount is £50,000, and the government will make a business interruption payment to cover the first 12 months of interest payments.

As the UK government’s economic development bank, the BBB aims to increase the access to finance programmes for small businesses across the UK. The banks core programmes support nearly £8 billion of finance to almost 94,800 SMEs.

Furthermore, since the outbreak of the pandemic in March 2020 the BBB has launched four new Coronavirus business loan schemes, delivering more than £72 billion of finance to more than 1.5 million businesses as at the end of January 2021.