As we commence what will be a difficult winter for many, with businesses having to plan for extra costs, now may be a good time to revisit the repayment options available on your bounce back loan to help with cashflow.
In September 2020 The Chancellor of the Exchequer announced measures that gave businesses options to help ease the burden of the repayment of their bounce back loan. This scheme is known as Pay As You Grow ( PAYG) and offers you the ability to flex your payments.
These options can be taken as a combination or individually at any time throughout the term of the loan. Many businesses have already taken advantage of some of these and whilst the current financial situation was not predicted at the time these measures were announced, they remain a valuable source of cashflow planning for businesses.
Your options are:
10-year Term Extension
You can extend your Bounce Back Loan term to 10 years, at the same interest rate of 2.5%.
You can use this option once over the lifetime of your loan.
- May be suitable if you want to reduce your monthly repayments for the length of your loan.
- You can request an extension at any time during the term of your loan.
- You’ll pay back your loan at a slower rate, so the total amount you owe will go up and you’ll pay more interest over a longer term.
- If you’re considering this option you should think carefully about your ability to repay over a longer timeframe, taking into account things such as if you intend to cease trading or retire within the revised term of your Bounce Back Loan.
Capital Repayment Holiday ( 6 months)
You can choose to reduce your monthly repayments for 6 months by paying interest only.
You can use this option up to 3 times over the lifetime of your loan.
- May be suitable if you need short-term support, but expect to be in a better position to repay in the future.
- You can switch to interest-only repayments up to 3 times during the term of your loan – this can be taken back-to-back (e.g. 18 consecutive months) or on 3 separate occasions.
- By selecting this option, you can add 6 months to your loan term each time you switch to interest-only repayments unless you’ve already extended your term to 10 years.
- Taking a capital repayment holiday will mean you are charged more interest and your loan will cost you more overall.
- If you select this option, you’ll need to wait until the end of the 6-month period before you can use any other option.
Full Repayment Holiday ( 6 months)
You can request a 6-month full repayment holiday (both capital and interest).
You can use this option once over the lifetime of your loan.
- May be suitable if you need short-term support, but expect to be in a better position to repay in the future.
- If you select this option, you will pause monthly repayments (both capital and interest) entirely for 6 consecutive months.
- You can also choose to add 6 months to your loan term unless you’ve already extended your term to 10 years.Taking a full repayment holiday will mean you are charged more interest and your loan will cost you more overall.
- Interest charged during your 6-month repayment holiday will be deferred for 6 months and spread out over the remaining term of your loan.
- Your monthly payments at the end of the payment holiday and the amount you owe will go up. That’s because even though you don’t make payments during your repayment holiday, we will still add interest to your loan amount and interest will be charged at the same rate (2.5% (fixed) per annum).
- You can use a full repayment holiday once during the term of your loan.
- If you select this option, you will need to wait until the end of the 6-month period before you can use any other option.
How do I apply for Pay As You Grow?
You should be able to access the scheme on your own lender’s online platform, so check in your online banking portal.
Don’t leave it too late to claim to give the lender time to make the arrangements. You should give at least 10 working days before the payment is due.
There is no new entitlement assessment at this stage as each borrower has the right to choose any of these options.
Does the application affect my credit rating?
Using Pay As You Grow will not, in principle, affect your business’s ability to obtain finance in the future. Pay As You Grow is designed to alleviate borrowers’ financial difficulty, even before it arises, by giving borrowers flexibility in meeting their repayment obligations. But businesses need to consider that it may affect the overall creditworthiness of the business until the debt is repaid. This will be particularly relevant should the business need to apply for further funding during the term of the loan.
However, if there are arrears on the loan at any time, normal recovery procedures by the lender will apply and credit ratings will then be affected. So, it’s important to make the right choices over affordability in advance of problems occurring.
Can I pay back my Bounce Back Loan early?
The simple answer is, yes, you can repay the loan at any time including before the loan repayments start or if the loan term is extended.
If you need help in planning your cashflow or looking at your bounce back loan repayment options, please get in contact.