The Bounce Back Loan (BBL) Scheme (of which applications closed 31st March 2021) was introduced by the Government to help small and medium-sized businesses affected by the coronavirus outbreak to access finance. Under the scheme, businesses could borrow between £2,000 and up to 25% of their turnover. The maximum loan that was available was £50,000.

If you took out a Bounce Back loan and are struggling to pay it back, you can still access the Pay As You Grow system to give you greater flexibility to make repayments according to your individual circumstances.

We look at this system in more detail below.

What is Pay As You Grow?

The aim of the Pay As You Grow (PAYG) system is to ease the financial burden of paying Bounce Back Loans that businesses had taken earlier in the year in order to allow for the impacts of the Coronavirus pandemic.

The system allows greater flexibility for you to pay back these loans to support you in getting on top of managing your cash flow and improving your changes for growth. This is done by allowing businesses who have started repaying their Bounce Back Loans to:

  • Extend their loan term from six years to 10 years, at the same fixed interest rate of 2.5%
  • Switch to interest-only repayments for 6 months (reducing monthly payments) – which is only available up to three times during the term of their Bounce Back Loan
  • Take another repayment holiday for up to six months – which is only available once during the term of their Bounce Back Loan

You can take these options individually or in combination with each other.

However, you must take caution with this. If you use more than one of these options, you will pay more interest overall and the length of your loan will increase in line with any repayment holidays taken.

How can you access Pay As You Grow?

The first repayments for Bounce Back Loans were due from May 2021. Lenders will inform you directly about their Pay As You Grow options. If you haven’t heard from your lender yet, get in touch with them directly to discuss how your repayments may change according to their choices under the scheme.

Will using Pay As You Grow affect your ability to borrow in the future?

Using Pay As You Grow will not affect a your ability to obtain finance in the future. It won’t impact your credit rating; however, it may affect future lenders’ assessments.

For example, when considering a request for additional funding a lender will take into consideration incomings and outgoings, including existing debt repayments such as the Bounce Back Loan Scheme. It will also consider a business’s total debt exposure, which will again include the outstanding Bounce Back Loan Scheme facility.

Other financial support

Despite the benefits of Pay As You Grow, you can still end up paying more interest overall if you choose to extend the term to ten years or take advantage of the repayment holidays (as mentioned above) which increases the cost of your loan.

Therefore, it’s important you’re looking at other areas in your business and how you can manage your cash flow. We have several articles on managing your cash flow, including Keeping the Wolf from the door and 11 tips for cash flow management.

The Government still have lots of support available to help your business get back to pre-pandemic levels and continue to grow, including the Help to Grow scheme and the Super Deduction scheme.

If you’d like to continue the conversation and find out how we can help you manage debt and improve your cash flow, take a look at our Breakthrough Recovery Programme, or give us a call on 01474 853 856 or email discovery@a4g-llp.co.uk.

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