More details of Pay as You Grow unveiled
The government has unveiled more details of the Pay as You Grow (PAYG) facility, which is designed to help bounce back loan (BBL) borrowers manage their cashflow better.
The initiative was first announced by Chancellor Rishi Sunak in September, to give businesses more time and flexibility to repay their loans.
It will enable businesses who have started repaying their BBL to request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5 per cent.
PAYG will enable BBL borrowers to reduce their monthly repayments for six months by paying interest only, which is available up to three times during the term of their loan, or to take a repayment holiday for up to six months, which is available once during the loan term.
Borrowers can use these options individually or in combination with each other and remain responsible for repaying their BBL loan and fully liable for the debt.
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The British Business Bank, which administers the scheme, said lenders will inform their customers about PAYG three months before repayments commence. Borrowers should wait until they are contacted by their lender before enquiring about the scheme.
The development bank said that lenders will advise customers about how their payment profiles may change according to their choices under the scheme.
Businesses first began to receive BBLS loans in May 2020 and the first repayments will become due from May 2021 onwards.
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“PAYG will provide tangible benefits to BBL 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, small business lending at the British Business Bank.
“The scheme offers greater flexibility to businesses who may need flexibility in paying off their BBL and enables them to manage their repayments more effectively.”
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“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,” said business secretary Kwasi Kwarteng.
Both UK Finance and the Federation of Small Businesses (FSB) welcomed the PAYG option.
“As the outlook for many businesses remains challenging, the flexibility of PAYG will help smaller businesses manage their cashflow and repayments,” said Stephen Pegge, managing director of commercial finance at UK Finance.
“Lenders will be contacting BBL borrowers in advance of their first payments to outline their options.”
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“These should help many small firms to keep debts manageable as they drive our recovery from an incredibly deep recession,” said Martin McTague, national vice chair of the FSB.
“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.”
