Loans Online – Sunak to let 1.4m UK businesses spread Covid loan payments over longer period

Chancellor Rishi Sunak will on Monday offer relief to the 1.4m UK small businesses that borrowed money through the state-backed bounce back loan scheme by letting them repay over a much longer timescale in an effort to prevent widespread company failures.

The move comes as Sunak remains under pressure from the opposition Labour party and business groups to step up support for coronavirus-hit companies beyond the spring.

Almost £45bn has been borrowed by more than 1.4m small companies under the bounce back scheme, which offers cheap state-backed bank loans of up to £50,000. 

Senior bankers are concerned that many will struggle to repay the money as they emerge from the pandemic in a much weakened financial condition and with only a slow return of their customers. 

Officials have drawn up plans under a “pay as you grow” structure first outlined by the chancellor in September last year to help ease debt repayments.

While borrowers enjoyed interest-free loans for the first year, they are due to start repaying in May — at which point the pandemic is still expected to be holding back the economic recovery.

Pay as you grow will allow businesses to extend the length of their bounce back loans from six to 10 years, reducing monthly repayments. 

Under the announcement, struggling businesses will also be able to choose interest-only repayments or payment holidays for up to six months.

Banks will from Monday start to contact their customers about the new scheme, according to officials and banking executives.

The extension to 10 years will also raise the prospect that more businesses will labour under pandemic-related debts for longer. Bankers have warned that the UK could be left with thousands of so-called “zombie companies” that are able to survive but lack the resources to invest or grow given the need to pay interest on pandemic loans.

From April both the bounce back and other state-backed loans to large companies will be closed to new applicants. The Treasury is also set to axe the job support scheme, or furlough, under which the state pays millions of people’s wages.

The chancellor is considering extending the package of business support to the summer given the likelihood of a continued lengthy period of at least partial lockdown.

One option under consideration is replacing the furlough with a less generous incentive for companies to keep hold of workers — perhaps along the lines of the £1,000 “job retention bonus” that the chancellor temporarily brought in last year.

Anneliese Dodds, Labour’s shadow chancellor, said on Friday that the furlough scheme should be radically reformed and extended indefinitely, as long as there are health restrictions, as part of a wider emergency package of measures.

Dodds said Sunak should not wait until the Budget on March 3 to announce the changes. “People can’t afford to wait for the chancellor to get his act together. They need emergency action today, not more dither and delay until the budget,” she said.