An assessment of ‘Pay As You Grow’ options

Are your clients aware of the three options to help with BBLS repayments?

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The Bounce Back Loan Scheme (BBLS) was designed to enable UK businesses to access finance quickly during the Covid-19 pandemic. Businesses that were losing revenue and seeing their cashflow disrupted as a result of the outbreak were able to apply for loans of up to £50,000 from May 2020, with a payment holiday in place for the first 12 months. Applications for new BBLS loans and top-ups closed on 31 March 2021.

To help manage repayments, a variety of Pay As You Grow (PAYG) options was announced that could give BBLS recipients more time and flexibility to pay back their loan.

There are three PAYG options to consider:

  1. Request an extension of the loan term to 10 years from six years, at the same fixed interest rate of 2.5%.
  2. Reduce the monthly repayments for six months by paying interest only. This option is available up to three times during the term of the Bounce Back Loan.
  3. Take a repayment holiday for up to six months. This option is available once during the term of the Bounce Back Loan.

These options can be used individually or in combination with each other. If you have taken out a Bounce Back Loan, your lender will communicate PAYG options three months before your repayments begin, as well as outlining how your payment profile may change according to your PAYG choices.

Businesses first began to receive BBLS loans in May 2020 and the first repayments will become due from May 2021 onwards. Lenders will start to communicate PAYG options to borrowers three months before repayments commence.

Lenders will inform their customers about PAYG directly, so borrowers should wait until they are contacted by their lender before enquiring about the scheme.

Lenders will advise customers about how their repayment options may change according to their choices under the scheme. Borrowers remain responsible for repaying their Bounce Back Loan and are fully liable for the debt.

PAYG is designed to alleviate borrowers’ financial difficulty, even before it arises, by giving borrowers flexibility in meeting their repayment obligations. Using PAYG will not affect a borrower’s credit rating, but it may affect lenders’ future creditworthiness 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 BBLS facility. It will also consider a business’s total debt exposure, which will again include the outstanding BBLS facility.

In the first instance, businesses that have concerns regarding repaying debt should contact their lender. In addition, the British Business Bank has a range of guidance and resources available to all businesses, including content on managing your cashflow and a list of independent advice services.

For guidance regarding the accounting treatment of BBLS and other Covid-19 grants, see our Technical factsheet: accounting for Covid-19 grants and reliefs, available on our Coronavirus hub for UK members.