Due to the Covid-19 pandemic, a decision was made by the HMRC to extend/expand the loan repayment plan for the return of funds. The government has announced a package of measures under its Pay as You Grow scheme for businesses that took out Bounce Back Loans.
For those who are unfamiliar with it, the Bounce Back Loan Scheme (BBLS) was set up to help out smaller businesses access finance more quickly during the COVID-19 outbreak. The scheme allowed small and medium-sized businesses to borrow between £2000 and up to 25% of their turnover with the cap at £50,000. If you have not used the BBLS and believe you need to, the scheme is open for applicants until 31st March 2021.
All loan users will be able to create their repayment annuities according to their capabilities. This means that they will be able to delay all repayments for a further 6 months and extend their loan term. Businesses can now opt-out of making payments on BBLS loans until 18 (originally 12) months after they first took them out. The option to pause repayments will now be available to all from their first repayment, rather than after six repayments have been made. “Pay as You Grow” will also enable borrowers to
- Extend the length of their loans from six to ten years at the same fixed rate of 2.5% (thus halving their monthly repayments)
- Pause the repayment completely for up to a period of 6 months (available once during the BBLS)
- Make interest-only payments for six months (the government currently covers the costs of interest for the first year of the loan).
With these new circumstances also come to the obligations for both lenders and borrowers. Lenders will have to provide regular updates on the repayment schedule and borrowers should expect correspondence 3 months before their first repayments are due.
How to access Pay as You Grow?
Businesses first began to receive Bounce Back Loan Scheme (BBLS) loans in May 2020 and the first repayments will become due from May 2021 onwards. Lenders will start to notify borrowers of Pay as You Grow (PAYG) options to Bounce Back Loan Scheme borrowers three months before the initiation of repayments.
Lenders will start informing their customers about PAYG directly, so borrowers should hold until they are contacted by their lender before making any enquiry about the scheme.
Lenders will also advise customers about their repayment options and any possible changes according to their choices under the scheme. Borrowers will remain responsible for repaying their Bounce Back Loan and fully liable for the debt.