The sheer magnitude of the recession in the UK caused by the COVID-19 pandemic is unprecedented in modern times.
The UK economy remains 8.6% smaller than its size at the end of 2019, and it has been predicted that it will take at least 18 months for the economy to return to its pre-pandemic size.
In fact, the IMF has estimated that the UK economy contracted by 10% in 2020, the biggest fall of any G7 country – and despite the roadmap out of lockdown and the existing business support options, many businesses are still facing an uphill battle.
So, what is being done to help companies struggling for survival? One way that the government is hoping to get businesses back on their feet is by the introduction of the Pay As You Grow scheme for those who have taken out bounce back loans.
But what is it, how does it work, and – most importantly – how can it be accessed? Read on to find out...
Bounce Back Loans
Bounce back loans were first introduced back in May 2020 to help businesses struggling due to the coronavirus pandemic. The scheme provides access to emergency cash in order to help companies stay afloat, allowing them to borrow up to 25% of turnover up to a limit of £50,000.
The funds are accessed within days, and the borrowers don't have to make any repayments for the first loans 12 months. What’s more, they also have a 100% government-backed guarantee for lenders.
Bounce back loans have proved incredibly popular, with over 1.4 million small firms collectively borrowing a mind-blowing £45 billion.
Due to the third national lockdown, the scheme has since been extended until the end of March 2021, and on 6th February, Pay As You Grow was announced as a way to support smaller businesses manage their cash and have a better chance of getting back to business growth.
Pay As You Grow
The Pay As You Grow scheme essentially aims to give businesses that have taken out bounce back loans the breathing space and flexibility they need to get back on their feet.
Under the scheme, bounce back loans can be extended from six to 10 years at the same fixed interest rate, which is set to reduce monthly repayments by almost half.
Companies can also opt to delay all repayments for a further six months, meaning they can choose to make no payments on their loans until 18 months after they originally took them out.
What’s more, they can also opt to make interest-only payments for a six-month period on three occasions over the course of the loan in order to tailor their repayment schedule to suit their individual circumstances.
Additionally, the option to pause all repayments and take a six-month payment holiday will now also be available from the first repayment.
How to access Pay As You Grow
The government has made it clear that lenders are expected to offer Pay As You Grow options to all borrowers.
In fact, they are required to proactively and directly inform their customers about the scheme, which means that borrowers should wait until they are contacted by their lender before enquiring about the scheme. They should expect to be contacted three months before repayments are due to commence.
Of course, lenders will advise their customers about how their repayment options may change according to their choices under the scheme – and it goes without saying that borrowers remain responsible for repaying their loan and are fully liable for the debt.
Need additional help and advice?
If your business is facing financial difficulty as a result of coronavirus and you are struggling to pay back your loan, you don’t need to suffer on your own.
In addition to the Pay As You Grow scheme and other support options from the government, there are alternative business rescue solutions available to prevent your business from closing.
From company voluntary arrangements to pre-pack administration, the sooner you seek help, the more chance you have of turning things around. So be sure to contact our friendly and approachable team today to start planning your next steps.