Small firms are to get more time to repay state-backed loans taken out to help survive the coronavirus lockdown.
The changes include giving companies an option to extend the length of the loan from six to ten years under a “pay-as-you-grow” initiative. Chancellor Rishi Sunak said the move was to give companies “breathing space to get back on their feet”. He has been under pressure to act amid fears the continuing lockdown will spark a wave of company closures. About £45bn has been borrowed by more than 1.4 million small firms under the Bounce Back Loan scheme, which offers cheap loans of up to £50,000. Under the existing scheme, firms get interest-free loans for the first year. But many will start repaying the money in May, when economic recovery is still expected to be weak.
Under the new arrangements, announced late on Friday, businesses will have the options of:
- Extending the length of the loan from six years to 10
- Making interest-only payments for six months, with the option to use this up to three times throughout the loan
- Pausing repayments entirely for up to six months
Mr Sunak said the plan allowed firms to “pay-as-your-grow”, offering flexible repayment options as the economy strengthens. He said: “Businesses are continuing to feel the impact of extended disruption from Covid-19, and we’re determined to give them the backing and confidence they need to get through the pandemic. “That’s why we’re giving Bounce Back Loan borrowers breathing space to get back on their feet, through greater flexibility and time to repay their loans on their terms.”
Banks, which have been processing the loans, will be asked to contact customers from Monday to explain the new options to their business customers. UK Finance, which represents the banking and finance industry sector, said it was committed to helping businesses ” of all sizes through the crisis”. Concerns have previously been raised about companies’ ability to pay back the cash under the scheme – and about fraud. A recent report by the National Audit Office said up to 60% of loans made under the bounce back scheme may never be repaid.