Many business owners struggling due to coronavirus have had to take out the lifeline of Business Bounce Back Loan (BBL) from the banks when they launched in May 2020 .
The 100% state- backed loan worth up to £50,000, offers no interest charged or repayments needed in the first 12 months.
For the businesses that took these BBLs early the 12 month interest free period will be coming to an end and repayments will be starting soon.
The treasury is advising banks that have offered the BBL scheme to offer a more flexible approach when repayments are due to be made, in the form of Pay as You Grow.
Pay As You Grow (PAYG)
The new approach is to offer the following concessions:
To extend the length of the loan from six years to ten years.
Allow borrowers to make interest only payments for six months, with an option to use PAYG facility up to three times throughout the loan.
Pause repayments entirely for up to six months. (Interest will still apply after the 12 month)
The Chancellor has now extended the flexibility of the third option, which will be available to all from their first repayment, rather than after six repayments have been made. This will mean that businesses can choose to make no payments on their loans until eighteen months after they originally took them out. (Prior to these changes, no repayments on Bounce Back Loans were required for twelve months.)
How does this affect you?
After 12 months, all banks will charge a fixed 2.5% annual interest. This is far cheaper than a typical personal loan.
Your lender will get in touch with you about repayments three months before they’re due to start. That means they’ll contact you nine months after you first took out the loan. This’ll be a good opportunity to discuss what the options are if you think you’ll need help with repaying the loan.
You can repay the loan early without penalty. Or with some banks you can part-repay or overpay.
The loans can now last for 10 years. So that’s a year interest-free and the rest at 2.5%. The loans were originally set up to last for six years, but this has now been extended to 10 – which the Government says could cut monthly repayments by almost half, though you will end up paying more interest. However, you can repay at any time without paying a fee, which gives you flexibility – and of course, the sooner you repay once interest is charged, the smaller the overall cost.
You can take a payment holiday and/or interest-only periods of up to six months. This includes the option to: – Move to interest-only payments temporarily up to three times, with each interest-only period lasting up to six months, and/or – Take one payment holiday over the length of the loan, where you pause repayments entirely for up to six months. This option can be taken immediately after the 12-month repayment-free period of your loan ends, meaning you can delay your first repayment until 18 months after you first took out the loan.
Remember that you’ll end up paying more in interest overall if you use one of these options.
The loan will likely go on your business credit report, but not on your personal one (though banks may do ‘soft’ credit checks on both).
Alison obtained a First class degree in Accountancy and Management at UCLAN University. She then went on to qualify as a certified accountant in 2006 and became a founder member in 2011.
Alison trained at a practice in Liverpool and, within her 10 years there, she developed as an accounts manager and obtained a varied portfolio of clients which has provided her with a range of experience in accounts, audit, VAT and taxation. Alison specialises in giving sound jargon-free advice to a range of small and medium sized businesses.