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SMEs offered flexibility to extend bounce back loans to 10 years

Small businesses that took out bounce back loans will get the chance to extend their loan term to 10 years and take a six-month payment holiday, under plans to offer SMEs a flexible repayment scheme.

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The details were announced by the British Business Bank, which administers the Bounce Back Loan Scheme (BBLS) and has created the ‘pay as you grow’ (PAYG) option for SMEs to manage their cashflow while making repayments.


Originally announced by the chancellor in September 2020, PAYG will enable businesses that have started repaying bounce back loans to:

  • Request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5%;
  • Reduce their monthly repayments for six months by paying interest only. This option is available up to three times during the term of their bounce back loan;
  • Take a repayment holiday for up to six months. This option is available once during the term of their loan.

Borrowers will be able to use these options individually or in combination with each other, but the British Business Bank said users of the scheme “remain responsible for repaying their loan and fully liable for the debt.”


Lenders will start to communicate PAYG options to borrowers three months before repayments start. They’ll also advise customers about how their payment profiles may change according to their choices under the scheme. The first BBLS repayments will become due from May 2021 onwards.


Richard Bearman, managing director for small business lending at the British Business Bank, said: “PAYG will provide tangible benefits to bounce back loan recipients, many of whom may have accessed the scheme to borrow money for their business for the first time.”


Stephen Pegge, managing director of commercial finance at UK Finance, said: “Nearly 1.5 million businesses have received a bounce back loan since the scheme launched in May last year. The flexibility of PAYG will help smaller businesses manage their cash flow and repayments.”


Before the PAYG scheme was announced, the National Audit Office issued a report last year warning that defaults on bounce back loans may reach up to £26bn.


Government policy on the treatment of SMEs in arrears on bounce back loans will be one of the topics discussed at Credit Strategy’s broadcast parliamentary briefing on 25 March.

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