Government extends bounce back loan repayment terms

Recognising the struggles of many UK SMEs, the government has made changes to how bounce back loans can be repaid.

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We’ve written previously about the UK’s looming SME debt crisis and, while no one is seriously talking about writing off the debt entirely (yet), the government has recognised that at the very least, businesses need more time to pay.

To this end, it’s announced a number of changes to the bounce back loan scheme, including delaying the first repayment, optional interest-only repayments, and extending the overall duration of the loan.

This article will explain exactly what has changed, and analyse the reaction to these changes.

How have the bounce back loan repayment terms changed?

According to the official press release on the bounce back loan changes, there are three new options to help businesses that are struggling to make their repayments.

Businesses can now choose to:

  • Extend the length of the loan (the time over which it can be paid back) from six years to 10 years
  • Make interest-only payments for up to six months at a time, which businesses can do three times during the length of the loan
  • Pause repayments entirely for up to six months

Remember bounce back loans already came with a 12-month period of no interest and no repayments, so this can now be extended to 18 months in total.

Businesses that have taken out a bounce back loan should be shortly hearing from their lender regarding these new options.

How could these changes help UK small businesses?

It’s no secret that this is a difficult time for many UK businesses, with consumer spending down and a pervasive feeling of economic uncertainty.

What these changes essentially amount to is the government delaying having to properly deal with the debt incurred by companies during the pandemic.

The hope (and, in some cases, expectation) from all corners is that the vaccine rollout will work and, by the end of the year, the “roaring 20s” will have been unleashed once more.

Well, maybe, although scientists are concerned about how the virus could continue mutating, and it remains to be seen whether the hoped for pent up tidal wave of spending will really be unleashed when all COVID-19 restrictions are lifted.

In the short term though, these changes can make a real difference to small businesses that have taken out bounce back loans.

The impact of being able to delay any repayments for another six months is obvious, and analysis from The Guardian showed that, for companies that took out the maximum £50,000 loan, extending the length of the loan from six years to 10 years would more than halve the monthly repayments from £940 to £460.

Additionally, the same analysis noted that any interest-only repayment periods would reduce the bill to £100 a month on the maximum £50,000 loan.

Taken together, these changes could therefore really boost cashflow for UK small businesses.

What has the reaction to these changes been?

Commentators and business experts generally welcomed these changes, although many noted that the government needs to go much further to properly protect UK businesses during this latest phase of the pandemic.

Unsurprisingly, the most vocal criticism came from the Labour party. Bridget Phillipson, the party’s Shadow Chief Secretary to the Treasury described the changes as “minor tweaks to a policy already more than 20 weeks old” and insisted that Chancellor Rishi Sunak is “clearly out of ideas when it comes to supporting hard-pressed businesses”.

Simon Cureton, the CEO of business finance marketplace Funding Options, struck a much more positive tone, saying “we welcome the Chancellor’s decision to give SMEs more breathing space to pay back the state-backed loans, as they navigate the obstacles this pandemic continues to present”. He also praised small businesses’ “unfaltering resilience in the face of adversity” but warned that “the long-term focus must be to wean them off these loan schemes” as, “the longer this goes on, the more it will negatively impact the delivery of a truly competitive lending market for SMEs”.

On social media meanwhile, reaction was dominated by those who feel excluded from the current financial support schemes, and people calling for the government-backed loans to be written off and turned into grants.

Can my business still apply for a bounce back loan?

Yes, the deadline for applying for a bounce back loan is 31 March 2021. So, if your business is struggling due to the latest lockdown, you’ve still got time to get support.

To apply, you’ll need to contact a lender participating in the scheme, a full list of bounce back loan lenders is available via the British Business Bank website.

Additionally, if you’ve already taken out a bounce back loan and borrowed less than the maximum allowed (either 25% of turnover or £50,000), then you can apply for a “top up” if you’re in need of further financial support.

To do this, you’ll need to contact the lender that you took out the original loan with, this British Business Bank page provides more information on bounce back loan top ups.

Written by:
Alec is Startups’ resident expert on politics and finance. He’s provided live updates on the budget, written guides on investing and property development, and demystified topics like corporation tax, accounting software, and invoice discounting. Before joining, he worked in the media for over a decade, conducting media analysis at Kantar Media and YouGov, and writing a wide variety of freelance pieces.
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