Rishi Sunak has announced the extension of the repayment period of state-backed loans in a further move to help mitigate the effects of the pandemic on small businesses.
“Businesses are continuing to feel the impact of extended disruption from COVID-19, and we’re determined to give them the backing and confidence they need to get through the pandemic”, he said in his recent statement. The aim is to give small firms, “breathing space to get back on their feet”, he said, as the new arrangements will allow businesses who used the Bounce Back Loan scheme to extend the payback period to ten years.
Small businesses have been hit by the pandemic particularly hard as they often lack the resources to weather economic crisis. In total, more than 1.4 million small businesses have borrowed around £45bn under the Bounce Back Loan scheme offered by the government last year – essentially a scheme offering cheap loans of up to £50,000. Before the pandemic, roughly half of private-sector employment in the UK was through small firms so it is clearly in the government’s interest to support them further, particularly amid widespread public criticism as the financial crisis deepens.
What will the new arrangements mean?
Many firms would have had to start repaying loans in May when the economy will not have had a chance to recover. Under the new arrangements, they will now have the following options:
- Extend the length of the loan repayment from six to ten years
- Make interest-only payments for six months (with the option to use this up to three times throughout the loan)
- Pause repayments entirely for up to six months
With greater flexibility, the government hopes that small businesses will be able to start paying back loans as the economy strengthens and their income grows. From Monday February 8th, banks will be contacting customers to explain the new options.
This is an encouraging step, but it does raise the question of whether the loans will ever be paid back. A recent report by the National Audit Office said that over half of loans made under the bounce back scheme may never be repaid. In addition, Sam Woods, Chief Executive of the Bank of England’s Prudential Regulation Authority, warned that taxpayers faced a “significant loss” from the state-backed loans.
If you are a small business owner and have taken out a loan under the Bounce Back scheme, please do not hesitate to get in touch.