Chancellor Rishi Sunak said he wanted to give companies struggling during the pandemic a “respite” by giving them more time to repay government support loans for the first time.
The Treasury Department announced flexible terms in September for 1.4 million companies that had taken out £ 45 billion bounce-back loans. This has been a lifeline for many as profits fell due to coronavirus restrictions.
The new offer included the option to repay the full amount over a period of ten instead of six years and only pay the 2.5% interest on the loans.
At that time, Mr. Sunak also announced that companies could pause the repayments for a total of six months, but only after six contributions had been made.
In a weakening of that policy, he agreed to give companies the option to opt for an additional six-month buffer before their first payment is due.
This means that borrowers who were able to borrow a maximum of £ 50,000, along with the initial 12 month interest and repayment vacation, have 18 months before they have to start paying back their debts.
Mr Sunak said, “Businesses continue to feel the effects of prolonged disruption from Covid-19 and we are determined to give them the support and confidence they need to help them overcome the pandemic.”
“That’s why we’re giving borrowers the ability to get back on their feet with more flexibility and time to repay their loans on their terms.”
The options were followed up last year, but banks will shortly be writing to the more than 600,000 companies that took out nearly £ 20 billion in loans for information on the program in May when the program first opened Get access to flexible repayment options.
Business Secretary Kwasi Kwarteng said, “While our vaccine rollout is developing at an incredible pace and the end is in sight, we know times are still difficult for many companies and additional support is needed.
“These flexible repayment options give businesses the time they need to recover from the pandemic before paying back loans, and give them the breathing space and confidence to rebuild better.”
The government and the British Business Bank, which manages the repayment loans on their behalf, hope they will also provide relief to companies that may be struggling.
“A lot of companies are undoubtedly doing well right now, but there are obviously still many under pressure,” Richard Bearman, chief executive of the bank for small business loans, told PA news agency.
“I think knowing that you have support and options gives this company the confidence to keep battling its way through potentially difficult times to grow.”
By extending payment plans from six to ten years, companies could cut their payments by hundreds of pounds every month.
It would allow a company that has taken out the £ 50,000 maximum loan to cut their monthly bill from around £ 940 to around £ 460.
Businesses are also offered three six-month periods of just paying the interest on the loan, which brings the bill down to around £ 100 per month for those who borrowed the maximum amount.
Mr. Bearman advised companies to wait to be contacted and follow instructions rather than contacting their bank themselves as banks would have difficulty dealing with such call volumes.
Dr. Adam Marshall, Director General of the UK Chambers of Commerce, said: “The bounce-back loan program has been a vital lifeline for many small businesses during the pandemic.”
He said flexibility is “vitally important in giving companies that have received loan repayment the much-needed flexibility to manage their repayments through this ongoing economic storm”.