Pay As You Grow for Bounce Back Loans

The Treasury has advised banks that provide Bounce Back Loans to offer a more flexible approach regarding repayments, called Pay as You Grow,  which is good news for small businesses.

Pay As You Grow (PAYG)

The new Pay As You Grow rules offer the following concessions:

1. To extend the length of bounce back loans from six years to ten years.
2. Allow borrowers to make interest-only payments for six months, with the option to use this facility up to three times throughout the period of the loan.
3. Pause repayments entirely for up to six months.

The Chancellor has now extended the flexibility of the third option, which will now be available to everyone from their first repayment, rather than after six repayments have been made. Businesses can now choose to make no payments on their bounce back loans until eighteen months after they originally took them out. (Previously, no repayments on Bounce Back Loans were required for twelve months.)

Improved cashflow

This could be very helpful for businsses struggling with cashflow issues as you could almost reduce monthly repayments by half by increasing the term of the loan from six to ten years.

In addition, the three periods when you can opt to make interest only payments for six months would further reduce the impact on your bank balance, as would the ability to request a pause in repayments for six months.

Accessing PAYG

 In the February Press Release announcing these changes, the Treasury said:

Lenders will proactively and directly inform their customers of Pay as You Grow, and borrowers should only expect correspondence three months before their first repayments are due.

In other words, banks are required to inform you of these relaxations, and they will no doubt advise you how to implement any of the PAYG options now available as part of this notification.

Pay As You Grow is welcome news for hard-pressed small businesses.