UK Pay as You Grow Scheme

The UK government has made another stride to strengthen the British economy’s footing after the COVID-19 crisis. In the address to the House of Commons on September 24, 2020, the Chancellor of the Exchequer made some important announcements. Mr. Rishi Sunak announced some additional relief moves to further help struggling business entities and avoid job losses. The highlights of the Chancellor’s speech were the extension of the loan repayment schedule and tax relief measures.

To soothe the burns caused due to Corona-induced lockdown measures, the UK government had issued numerous plans and schemes. In the last six months, these schemes aimed to relieve the troubles of both the self-employed business owners and job doers.

The Chancellor unveiled loan schemes to provide immediate funds to drowning business firms- both big and small. The Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme are among the prominent loan plans. These two lending programs target all the small business houses (SMEs) in the UK who are in dire need of financial backing.

Initially, the government declared the state-backed loan scheme to aid small business entities in April 2020. However, over the period, certain amendments have been brought forth in these schemes. Join us to know out about the new update declared for the loan programs such as the Bounce Back Loan Schemes. We also will enlighten you about some fundamental aspects of both the loan schemes.

An introduction to the Bounce Back Loan Scheme (BBLS)

On April 27, 2020, the UK government unveiled the Bounce Back Loans for small and medium scale businesses. Under the scheme, the government takes a guarantee for 100 percent of the loan amount. Bounce Back Loans are available to any business that has witnessed an adverse impact of the COVID-19 outbreak. The business entity should be established before March 1, 2020.

As per the scheme, a business entity can borrow any amount starting from £2,000 to 25 percent of the business turnover. There is an upper threshold limit of £50,000 for the loan amount. A group of accredited lenders shall provide loans under the scheme. The entity should not have availed loan facility under Coronavirus Business Interruption Loan Scheme (CBILS) or the Coronavirus Large Business Interruption Loan Scheme (CLBILS)

Banks, Insurers, and Public sector bodies are not eligible for the Bounce Back Loans. No interest is payable for the initial 12 months of the loan. A loan interest of 2.5% per annum applies to borrowings for the subsequent years.

As of September 24, 2020, the British Business Bank has lent more than 1 million bounce back loans amounting to about £38 billion. As per the earlier provision, the loan tenure was six years without repayment requirements for the first year. The loan term has been further extended with the new announcement of the Chancellor.

An Introduction to Coronavirus Business Interruption Loan Scheme (CBILS)

Another initiative for relief to small and mid-sized business entities is the Coronavirus Business Interruption Loan Scheme. The scheme provides financial assistance such as loans up to a maximum sum of £5 million. The state offers an 80 percent guarantee on behalf of the borrowing businesses. Business entities do not have to pay any interest or fees during the first 12 months period.

The Business Interruption Loans are available to businesses in the UK, which are badly impacted due to the outbreak. The annual turnover of any eligible business must not exceed £45 million. Entities applying for a loan under CBILS have to corroborate that their business would have remained thriving in the absence of the pandemic. They should not have received De Minimis State Aid above the stated limit in the past two fiscal years. A team of about 50 accredited lenders is providing loans under CBILS.

As per the data released on September 24, 2020, under the Coronavirus Business Interruption Loan Scheme, more than 65,000 loans have got approved; they value more than £15 billion. The type of facility the borrower avails of shall determine the tenure of the loans under CBILS. The maximum term was originally three years for overdraft and invoice financing. For loans and asset financing, the period was up to 6 years. With the new declaration of the government on September 24, the loan tenures have been revised.

A brief about the Pay as You Grow Scheme

A further plan to encourage the resurgence efforts of business entities is the Pay as You Grow Scheme. With the new scheme, the UK government aims to deploy additional flexibility to the borrowers of the prevailing coronavirus loan schemes. The schemes include the Bounce Back Loans Scheme and the Coronavirus Business Interruption Scheme.

Provisions for Extension of Loan Repayment Tenure under Pay as You Grow Scheme

  • Loan Term Extension for BBLS

As per the “Pay as You Grow Scheme,” the Bounce Back Loans tenure is increased to ten years from six years. It will result in about 50 percent reduction in the amount of monthly instalments. Hence, SMEs will be able to retain a higher amount for their business needs.

  • Loan Term Extension for the CBILS

The entities that have taken loans under Coronavirus Business Interruption Loan Scheme will also benefit from the extension. The loan repayment tenure for CBILS has even gone up to ten years from the prevailing six years.

  • Extra Payment Holidays

The new scheme will also provide borrower entities to opt for Interest-only repayments for the maximum period of six months. One can even suspend loan repayments entirely for the six months.

  • Deferred Deadlines for making Applications for Loan Schemes

The government has also provided the extension of the due dates for application to the Bounce Back Loan and Coronavirus Business Interruption Loan Schemes. Beforehand, the deadline for applications to the Bounce Back Scheme was November 4 2020. At the same time, the last date for applying for CBILS was October 20, 2020. All the deadlines have been extended to November 30, 2020. While the last date for obtaining lender approval is December 31, 2020.

The Positive Support Schemes of the UK Government boost our hope for brighter times!

The UK government has so far presented economic revival plans worth about £190 billion. The government is making the best efforts to improve the vulnerable condition of the UK economy. With the initiatives of the winter economy plan, the government has further reinforced struggling business entities. The loan extensions amended SEISS, a new job support scheme, and added VAT reliefs would fortify the recovery efforts. Support packages and loans will allow business entities to pay their employees and run their businesses more efficiently. Millions of business entities in the United Kingdom are looking forward to making the most out of the support schemes.

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