Chancellor converts loan scheme to Pay as You Grow
Amongst the coronavirus support updates made by the Chancellor of the Exchequer this afternoon was the extension of all loans – with particular focus on the Bounce Back Loan Scheme under the new Pay as You Grow scheme.
Many anticipated the extension of the Coronavirus Business Interruption Loan Scheme (CBILS) as part of Chancellor Rishi Sunak’s coronavirus support scheme announcements today.
Instead, all of the loan schemes have been extended, with applications to lenders open until 30 November and approvals closing on 31 December. Schemes included are CBILS, the Coronavirus Large Business Interruption Loan Scheme (CLBILS), the Bounce Back Loan Scheme (BBLS) and the Future Fund.
The Chancellor also announced that both CBILS and BBLS loans would be made more flexible, with particular focus on the latter.
“The volume and velocity of lending to SMEs through the Coronavirus schemes probably meant this was inevitable,” commented Countingup CCO Andrew Garvey. “Many businesses would have been focused on getting cash to survive and not been looking at how and when they needed to repay the loans.”
“There is still a massive chunk of the self-employed freelancers missing from being eligible for support,” said Coconut accounting lead James Trowell. “Not everyone wants to take loans when they cannot guarantee their next income to even think about paying loans back.”
The Bounce Back Loan Scheme’s (BBLS) repayment structure will be converted into “Pay as You Grow” – offering a more flexible repayment system over a longer period for businesses who borrowed under BBLS, announced the Chancellor.
Pay as You Grow will allow businesses to extend the length of their BBLS loans from six to ten years, cutting monthly repayments in half.
Businesses will also be able to pay interest-only repayments for up to six months and struggling businesses will have the option to apply for BBLS payment holidays, suspending repayments altogether for up to six months.
2/ This means:
✅Loans can be extended from six to ten years – nearly halving the average monthly repayment.
✅Businesses who are struggling can now choose to make interest-only payments.
✅Anyone in trouble can apply to suspend repayments altogether for up to six months.
— Rishi Sunak (@RishiSunak) September 24, 2020
“Extending the repayment period and allowing interest only re-payment will obviously help SMEs with cashflow,” said Garvey. “It does mean that some businesses may be indebted for a lot longer. It could create zombie companies though and reduce the amount of funding available from lenders to more viable businesses post-Covid.”
“Pay-as-you-grow, interest-only terms, additional payment holidays, it’s ultimately putting lipstick on a pig,” commented microbusinsess director Jon Kay. “Debt is debt and for many small businesses struggling to bounce back in a brutal environment it will be the final nail in the coffin.”
As part of the announcement, the Chancellor announced that it would give CBILS lenders the ability to extend the length of loans from a maximum of six years to ten years “if it will help businesses to repay the loan”.
“I’m delighted that these schemes have been extended to 31 December, especially CBILS,” commented founder of The Corporate Finance Network, Kirsty McGregor. “Businesses are only just assessing what their cashflow needs will be and many will need to consider further finance to ensure they are capitalised enough to see them through the next year, provide sufficient funding for them, not only to survive, but to grow as well.
“The government guarantee provides lenders with the ability to offer facilities as close to unsecured finance as they can and that has to be a great comfort to most business owners. Accountants have the chance to support more businesses now before this scheme ends,” she added.
Almost 2.1m small to medium-sized UK businesses have taken a BBLS, with £29,000 being the average loan size. Many businesses taking smaller BBLS have converted their loans into larger CBILS loans to increase the size of their capital buffer against the economic crisis.
“I would encourage all accountants to take this extra opportunity to speak to all their clients again and to ensure that they are adequately capitalised for the months ahead,” advised Capitalise co-founder Paul Surtees. “Times are still very uncertain and many businesses will currently be considering whether their trade is likely to be affected if further lockdowns are instigated.”
“The government must now focus on building a stronger long term view,” said HW Fisher partner Simon Michaels. “Furlough cannot last forever, and neither will CBILS. In reality, we have 2.5 months left of business this year and more questions than answers remain. The Chancellor might not be able to save all businesses – but he can save more.”
“The travel and hospitality sectors will continue to struggle in the uncertainty of our current climate,” said Satago CEO Sinead McHale. “Generally, when taking on a loan, a business owner will feel optimistic about their future performance and therefore confident that they can repay their debt when the time comes. But with no guarantee that pubs and restaurants will remain open, let alone airlines and hotels, many will lack the confidence to apply for these loans.”