Pay As You Grow on Government loans

For many, it was a matter of when, not if, but the announcements by the Chancellor yesterday of further extensions of support under the business loan schemes have been widely welcomed by the business community.

The announcements include:

• A "pay as you grow" repayment scheme on CBILS and BounceBack Loans to be launched
• The maximum repayment period to be extended from six to 10 years, nearly halving the average monthly repayment
• Interest only repayments to be allowed for a period along with an entire suspension of payments for up to six months if needed
• The deadline for applications (presently 30 September for CBILS and 4 November for BBLS) to be extended for both to the end of November
• A new Government backed loan plan to be launched in January

The exact details of how the pay as you grow scheme will work and how it will be applied by lenders are still to be announced and we will update this blog as soon as they emerge. Longer terms loans and flexible repayment structures will challenge many lenders and it remains to be seen how they will respond.

One cash flow threat that has been hanging over most businesses since the beginning of lockdown has been removed, namely the need to pay the VAT that was deferred in Q2 this year. Originally, this was due to be paid by 31 March 2021, facing most businesses with the prospect of a double VAT hit in the first part of the year. The Government has now confirmed that this deferral can be repaid over 12 months.

Notwithstanding this, extending the deadline for applications allows more businesses to decide if they should be taking out a Government loan. More than £38bn has been lent under the BounceBack Loan Scheme so far and with new restrictions recently imposed in the face of a second wave of coronavirus, business owners should be assessing whether or not they have the liquidity to survive a long winter. We recommend that you ask yourself:

1. Will another period of lockdown with depressed revenues drain our reserves?
2. Did we take a CBILS earlier in the year believing it would be enough, but now face financial pressures again?
3. Would we benefit from extending the term or repayment profile of our CBILS or BounceBack loan?
4. Could we do with a safety net, just in case?

If the answer to any of these questions is "yes", we recommend that you seriously consider applying for a new or restructured loan in the extended period. Borrowing has never been available on such favourable terms and is unlikely to be repeated, and remember, if you take these loans out and ultimately don't need them, you can repay them at any time. Your business credit rating will also not be affected.

Contact us for further information and a confidential discussion about your requirements now.