Pay as You Grow: Help for Bounce Back Loan Borrowers

Makinson blog - Pay as you Grow scheme

Last month the government announced the Pay as You Grow scheme. The aim of the scheme is to help businesses who have signed up for a Bounce Back Loan. Here’s a look at what it is and how it can affect you.

It became very clear very quickly how badly the pandemic affected many businesses last year and continues to do so now. Back in May 2020, the Government launched the Bounce Back Loan Scheme. This scheme allowed businesses negatively affected by COVID-19 to borrow between £2,000 and £50,000. The amount they were able to borrow was based on their turnover, with an interest of 2.5% per annum.

Loans were offered by accredited lenders such as banks, with a 100% guarantee from the Government. The original terms for the Bounce Back Loan were that businesses wouldn’t need to start making payments for the first 12 months, with no interest payable for this period either. Following this, the loan would last for 6 years.

In response, more than 1.4 million businesses took out nearly £45 billion in loans through the scheme. Despite this, many businesses are still struggling due to the repeated lockdowns and continuing restrictions.

However, last month (February 2021) in was announced that a new scheme would be launched to help businesses with their repayments. Called the Pay as You Grow scheme, it offers borrowers more flexibility to repay their loan.

How Does the Pay as You Grow Scheme Work?

The aim of the Pay as You Grow scheme is to offer more flexibility and to help more businesses survive the pandemic. It does this in 3 main ways:

  • The option to extend the length of the loan from 6 years to 10 years
  • The ability to make interest-only payments for 6 months. This can be used up to 3 times throughout the loans duration
  • The option to pause repayments completely for up to 6 months

How Could the Pay as You Grow Scheme Affect You?

Firstly, the Pay as You Grow scheme will significantly help ease pressure on cash flow. The option to increase the length of the loan to up to 10 years will nearly half your monthly payments.

Additionally, having the option to make interest-only payments for six months would further lower the impact on cash flow and bank balance.

Before you decide that this is the best option for you, you should also consider potentially negative impacts. Extending the loan length to 10 years may help your cash flow, but it could result in you paying more interest. Even if you opt for putting off loan repayments for another 6 months, interest will still start 12 months after you took out the loan.

How Can You Access the Pay as You Grown Scheme?

As part of the Government’s announcement in February, the Treasury stated that borrowers will be directly contacted by their lenders. This means that if you took out a Bounce Back Loan, your provider should reach out to you to discuss your Pay as You Grow options. They also stated that correspondence should only be expected three months before the first payment is due.

To summarise, if your business has a Bounce Back Loan, the Pay as You Grow scheme could be for you. It could be particularly helpful if you are concerned about your loan repayments. Pay as You Grow will give you many options to ease the pressure that repayments may have on your business’ cash flow.

You can find the Government’s announcement of the Pay as You Grow scheme on the gov.uk website. It is important to note that even if you haven’t yet taken out a Bounce Back Loan, you still have until March 31st 2021 to do so.

As experienced accountants, Makinson & Co are always here to offer professional advice. Should you have any concerns or questions regarding your own finances we’re here to help. You can easily contact us using our online contact form, or by calling us on 01594 842 188