Further details of Pay As You Grow (PAYG) have been confirmed, enabling more flexible repayments on Bounce Back Loans for smaller businesses
Originally announced by the Chancellor of the Exchequer in September 2020 to help businesses impacted by Covid-19, the facility will enable businesses who have started repaying their Bounce Back Loans to:
- Request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5%
- Reduce their monthly repayments for six months by paying interest only. This option is available up to three times during the term of their Bounce Back Loan
- Take a repayment holiday for up to six months. This option is available once during the term of their Bounce Back Loan.
Borrowers can use these options individually or in combination with each other and lenders will inform their customers about PAYG directly.
Businesses began to receive Bounce Back Loans in May 2020 and the first repayments are due from May 2021 onwards. The scheme has supported nearly £45b of loans to 1.5 million businesses.
Businesses can apply for a loan worth between £2,000 and up to 25% of their turnover, with a maximum of £50,000. A fixed interest rate of 2.5% is payable after the first year.
The government will make a Business Interruption Payment (BIP) to cover the first 12 months of interest payments.
Kate Nicholls, chief executive of UKHospitality, said: "This is a welcome announcement from the chancellor as the greater flexibility offered in repayment options will give valuable breathing space for many hospitality businesses. The overwhelming majority are under huge pressure after months of little or no income, with cash fast running out and an ever-increasing debt pile as a result of prolonged periods of closure.
"While this does provide relative respite for some, it's important that banks are as flexible as possible in allowing hospitality businesses to access better terms and follow through with this announcement. government has a role to play if this is not seen to be taking place.
"The survival of thousands of businesses and the ability of the hospitality sector to play a full part in the nation's economic recovery hangs in the balance. What's urgently required is a clear roadmap to reopening, a solution to the ongoing rent debt issue that continues to cast a huge shadow over the sector, along with an extension of the business rates holiday and VAT cut. These measures will help give hospitality a fighting chance to get through this crisis, to grow and create jobs once again."