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Chancellor Outlines ‘Pay as You Grow’ Repayment System for Bounce Back Loans

By Jon Munnery
24 September 2020

Chancellor Rishi Sunak has outlined a new “flexible” repayment system that is to be introduced in relation to Bounce Back Loans provided to businesses hit by the coronavirus crisis.

The system is based on a “pay as you grow” policy, with the lifespan of credit deals able to be extended from six years up to 10 years upon request.

The Bounce Back Loans scheme was introduced earlier in the year with the government providing finance to companies that found themselves struggling urgently to maintain their cashflows as the whole country grappled with the realities of the unprecedented virus pandemic.

More than a million businesses are understood to have taken on Bounce Back Loans to help them stay afloat during tough times but concerns have been growing about what might happen when those loans need to start being repaid.

The worry has been that while government-backed loans proved enormously popular and hugely helpful to a great many businesses this year, it could be that lots of companies soon find themselves effectively unable to pay back what money they’ve borrowed.

Mr Sunak’s commitment to extending the scope of the loan terms and giving businesses more time to make their repayments may well represent much needed breathing space for companies that still find themselves battling to balance their books once the virus crisis is over.

It has also been announced that interest-only periods of six months and payment holidays are to be granted to businesses having obvious difficulty paying back their Bounce Back Loans.

Responding to the chancellor’s announcements, Adam Marshall from the British Chambers of Commerce said the government’s updated financial support policies will “help preserve livelihoods and ease the cash pressures faced by firms as they head into a challenging and uncertain winter”.

Figures released recently by the Office for National Statistics showed that roughly one in 10 companies across the UK are at either moderate or severe risk of becoming insolvent.

More than a million companies are known to have taken on Bounce Back Loans this year, with the amounts borrowed totalling around £38 billion.

Jonathan Munnery
Partner
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