Businesses are to be given more time to repay Covid loans, as the chancellor announces options to delay the first payment for six months and make repayments over 10 years.
Firms struggling to keep afloat during the pandemic are to be given more time to make the first repayment on government support loans. Rishi Sunak said the change was being made to give businesses more ‘breathing space’. In September, the Treasury announced ‘pay as you grow’ flexible terms to 1.4m companies that took out £45bn worth of ‘bounce back’ loans.
The loans have been a lifeline to many as incomes fell due to coronavirus restrictions. The new offer allows firms to choose to pay only the 2.5pc interest on the loans and includes the option of paying back the total sum over 10 years instead of six.
Sunak also announced in September that businesses could pause repayments altogether for six months but only after six contributions had been made.
In making the policy less onerous, he has agreed to allow firms to choose an additional six-month pause before their first payment is due. This means people who took out loans and were able to borrow a maximum of £50,000 will have 18 months before they have to start repaying what they owe, thanks to the initial 12-month interest and repayment holiday.
Sunak said as businesses continue to experience the impact of extended disruption from Covid-19, the Government is determined to give them the support and confidence they need to get through the pandemic.
Labour dismisses changes as ‘minor tweaks’
Although the options were trailed last year, banks will shortly write to more than 600,000 businesses that borrowed almost £20bn when the scheme first opened in May, to provide information on how to access flexible repayment options.
Business secretary, Kwasi Kwarteng, commented that the Government knows that times are still tough for many companies and additional support is needed, even though the vaccine rollout is moving swiftly and there is light at the end of the tunnel.
The flexible repayment options, he said, will give businesses the time they need to recover from the pandemic before they have to pay back loans.
The Labour Party suggested the chancellor’s latest changes were ‘minor tweaks to a policy already more than 20 weeks old’. Shadow chief secretary to the Treasury, Bridget Phillipson, said the chancellor is evidently ‘out of ideas’ when it comes to supporting hard-pressed businesses.
The Government and the British Business Bank which administers the bounce back loans on its behalf, hope the changes will relieve some of the burden from companies which may be struggling.
Extended repayments could reduce bills
Richard Bearman, the British Bank’s managing director of small business lending, told the PA Media news agency that knowing there is support and a range of options gives a business the confidence to persevere through potentially difficult times to reach a point where normal service can resume.
Extending payment plans from six to ten years could enable businesses to reduce their payments by hundreds of pounds per month. For example, it would allow a company that took the maximum £50,000 loan to reduce its monthly bill from around £940 to £460.
Firms will also be offered three six-month periods when they pay only the interest on the loan, further reducing the bill to around £100 per month for those who took out the maximum amount.
Dr Adam Marshall, Director General of the British Chambers of Commerce, said the bounce back loan scheme has been a vital lifeline for many small businesses which are managing to keep going during the current lockdown.
Flexibility, he said, has an essential part to play in providing firms who received a bounce back loan with much-needed elbow room to arrange their repayments during this continuing economic storm.