The introduction of the Pay as You Grow Loan Scheme is part of the UK governments second phase package of measures to support organisation during the COVID-19 pandemic. It offers companies and individuals a loan repayment extension and increased flexibility.
All loan schemes have been extended, with applications to lenders open until 30th November and approvals closing on 31st December. The loan schemes include the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS), and the Bounce Back Loan Scheme (BBLS).
How does it work?
BBLS
Small businesses struggling due to the coronavirus can apply for a 100% government- backed loan worth up to £50,000, with no interest charged or repayments needed in the first 12 months.
Businesses can borrow between £2,000 and £50,000. The amount is capped at 25% of your total turnover. After the first 12 months, all banks and lenders will charge a fixed 2.5% annual interest.
Businesses have until November 30th, 2020 to apply for the loan. The deadline was originally Wednesday 4th November but this has now been extended.
Bounce back loans don’t affect your eligibility for other Government personal support. You can still apply for the self-employed income support grants, and universal credit.
The loan repayment period has now been increased from 6 years to 10 years. Remember the first year is interest-free and the rest at 2.5%. You can repay the loan early without penalty.
Businesses will be given the option to take a payment holiday and only pay the 2.5% interest repayments for up to six months. Businesses can do this 3 times over the repayment period.
Struggling businesses can also apply for a payment holidays, suspending repayments altogether for up to six months. This option is only available after you have made at least six repayments and can only be used once.
The BBLS is unsecured, meaning the government is accountable if you do not make the repayment making it more difficult for credit providers to take your assets if you can’t make the repayments
To be eligible for this loan your business must have been established before March 1st, 2020. Credit ratings will not affect your eligibility for the loan.
To apply for a BBLS you need to contact a bank and fill in an online application. You need a business to apply for the loan, but you don’t need a business bank account. Bounce back loans can be used to repay existing finance.
When completing the application, you will be asked details of your annual turnover, account number and the amount you would like to borrow. You need to provide a copy of your tax return and confirm that your business has been affected by the Coronavirus.
Example
There is no interest or repayments in the first 12 months. If you are repaying the loan in 6 years you will make 60 repayments. If you extend the loan length to 10 years you will make 108 repayments.
This loan does not work in fixed payments each month you will pay 1/60 or 1/108 depending on your loan period then the interest built up that month on the outstanding balance on top of your fixed payment. Meaning your payments will slightly decrease each month.
Below is an example on the differences between a 6 year and 10-year term. If you took a loan for £30,000 which is the average bounce back loan:
| 6 Year | 10 Year | |
| Capital Repayment | £500 | £278 |
| 1st Payment (Month 13 from receipt of loan) | £563 | £341 |
| 13th Payment (Month 25 from receipt of loan) | £550 | £334 |
| Last Payment (Month 72/120 from receipt of loan) | £502 | £279 |
| Total interest paid | £1,907 | £3,407 |
Please note these figures are calculated based on the information available and whilst all effort has been made to ensure accuracy there may be some minor differences.
How can we help?
If you are thinking of using the Pay As You Grow or applying for a Business Bounce Back Loan and need assistance in understanding them, please click here to contact us or email info@baileygroup.co.uk.