Last month was the first big month for businesses to begin paying back Bounce Back Loans. There were a few really early applicants who started repayments in May 2021, but June 2021 was when repayments started in earnest as it’s month 13 for the bulk of early borrowers.
Plenty of businesses find themselves in a position to repay the loans as originally scheduled (for the first year, there were no capital repayments and the government paid the interest; the capital and interest then get repaid over five years). Many have actually already repaid their loans – it was quite common to take the loan just in case it was needed, with the intention to repay it before the borrower had to start paying the interest, and we’ve seen plenty of businesses doing that.
But there are some businesses that are still struggling. Some of them would have been struggling anyway, but many are obviously struggling specifically because of the ongoing impact of the pandemic. The good thing is that for those businesses there are some new, more generous repayment options, collectively known as Pay As You Grow (clever in that it rhymes with Pay As You Go, but stupid in that one might be confused by what PAYG refers to in some contexts). The bad thing is that the Bounce Back Loan regime, which was lovely and simple, has been transformed into being rather messy.
Under PAYG you’ve three options:
- You can extend the repayment term. Rather than the initial six year loan, with repayments over years two to six, you can extend it to 10 years instead, with repayments over years two to ten.
- You can take up to three six-month interest-only periods, at any point you choose. You’ll still owe the capital amount, but you can have a breather from repaying it. Each time you do that, you can also ask to extend the loan term by six months, UNLESS you’ve already extended it to 10 years anyway.
- You can have one six-month capital AND interest holiday where you make no payments at all (you can’t split this holiday – or the previous three – into a greater number of smaller breaks. It’s six months or nothing). Again, when you do this you can ask to extend the loan term by six months if you’ve not already extended it to 10 years.
All three of those options are going to increase the cost of the loan to you in the end, because interest is always going to be based on how much you owe to the bank at any given moment. The longer you owe money to them for, the more it’ll cost you. So, although taking a loan “just in case” was more or less a no-brainer for many businesses, PAYG isn’t.
You don’t have to choose one of those options; you can mix and match them all and do the lot if you like. The actual mechanism for applying is going to vary from lender to lender, but it’s likely you’ll just do it via their online banking platform. You don’t need to get approved or credit checked – it’s your right to just tell the bank what you want. Borrowers are assured that taking advantage of PAYG will not have an impact in itself on their credit rating – though of course it you’re having to take a payment holiday or extension because of some kind of financial distress, it’s likely that whatever is leading to that is going to be having some impact on that rating anyway.
There’s a good amount of kicking cans down roads in all this. The initial BBL scheme meant that there was absolutely no incentive for banks to credit check applicants in any meaningful way at all (when the government has guaranteed the whole thing, why on earth would a bank spend even ten seconds contemplating the borrower’s ability to repay?). That means that the borrowers (if we put the fraudsters to one side) are a mix of businesses with real prospects where making a loan to them is genuinely economically productive, and a bunch of hopeless cases where they didn’t have a viable proposition in the first place. But perhaps these options will move a few businesses from the second camp to the first, and also help some businesses already in the first camp to recover and grow in a more secure way along a slightly less perilous path.
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