The government has outlined changes to the way businesses can pay back money borrowed under the COVID-19 emergency Bounce Back Loan Scheme.

The scheme was initially launched in May 2020 to help adversely affected SMEs manage their cashflow during the crisis, with loans of between £2,000 and £50,000 available. 

In September 2020, in response to the continuing crisis, Chancellor Rishi Sunak announced he was introducing ‘Pay as You Grow’ to the scheme. Further details were released in February 2021. The Chancellor says the changes announced in September and February will allow more flexibility on repayments and will give businesses longer to pay back. 

The main changes

  1. In the original scheme, businesses did not have to pay back any of their Bounce Back loan for 12 months. Under Pay as You Grow, this has been extended by six months, allowing businesses to delay any payment for 18 months if they choose.
  2. The option to pause repayments now kicks in after the first loan repayment. Previously, this option was only available after six repayments.
  3. Borrowers are being given longer to pay back the loans, with the length of the repayment period being extended from six years to 10 years. This in effect almost halves the monthly repayment.
  4. Businesses can choose to make interest-only payments for six months, with the option to use this three times during the repayment period.

Existing Bounce Back borrowers can expect to hear from their lenders to discuss the new flexi-options.

Rishi Sunak explained: “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.”

How to apply

Latest government figures show that to date, over 1.4 million businesses have used the Bounce Back Loan Scheme, borrowing almost £45 billion in loans between them.

Loans are available for up to 25% of turnover, with a maximum loan limit of £50,000. The government covers the costs of interest for the first year of the loan; after 12 months, the interest rate is 2.5% a year.

The deadline for applying is looming – 31 March 2021 – so businesses need to act fast to make their applications, or to top up their initial Bounce Back loan if they did not borrow the maximum amount.