More than 1.4m firms are given more time to repay Covid ‘bounce back’ loans over default fears 

More than 1.4 million businesses which took out pandemic ‘bounce back’ loans will be given more time to repay them in an attempt to prevent widespread defaults.

Chancellor Rishi Sunak is expected to announce a ‘pay as you grow’ scheme on Monday that will give firms more breathing room to deal with their debts.

Almost £45billion has been loaned to businesses under the Government scheme, with banks providing state-backed loans of up to £50,000. 

But with repayments due to start in May and the economic impact of the pandemic expected to stretch into the summer, there is concern that some firms may struggle with their obligations.

Chancellor Rishi Sunak (pictured) is expected to announce a ‘pay as you grow’ scheme on Monday that will give firms more breathing room to deal with their debts

In response, Mr Sunak is set to announce that firms will now have the option to extend the term of their loans from six years to ten, significantly reducing monthly payments, the Financial Times reported.

Struggling businesses will also be able to choose interest-only payments or take a payments holiday for up to six months.

It means that, along with the initial 12-month interest and repayment holiday, loanees – who were able to borrow a maximum of £50,000 – will have 18 months before having to start paying back what they owe.

Mr Sunak said: ‘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.

‘That’s why we’re giving bounce back loan borrowers breathing space to get back on their feet, through greater flexibility and time to repay their loans on their terms.’

The options were trailed last year, but banks will soon write to the more than 600,000 businesses that borrowed nearly £20 billion between them in May, when the scheme first opened, to provide information on how to access flexible repayment options.

Business Secretary Kwasi Kwarteng said: ‘While our vaccine rollout is moving at an incredible pace and the end is in sight, we know times are still tough for many companies and extra support is needed.

Business Secretary Kwasi Kwarteng (pictured) said the flexible repayment options will give businesses the time needed to recover from the pandemic before having to worry about repaying their loans

‘These flexible repayment options will give businesses the time they need to recover from the pandemic before paying back loans, giving them the breathing space and confidence to build back better.’

The Government and the British Business Bank, which administers the bounce back loans on its behalf, hopes it will also take some burden off companies who may be struggling.

‘Many businesses are no doubt doing well at the moment, but clearly lots are still under pressure,’ Richard Bearman, the bank’s managing director of small business lending said.

‘I think knowing you’ve got support and you have options gives that business the confidence to keep battling away through potentially difficult times to get to the growth.’

Extending payments plans from six to 10 years could see businesses reduce their payments by hundreds of pounds every month.

It would allow a company which took the maximum £50,000 loan to reduce its monthly bill from around £940 to approximately £460.

Firms will also be offered three six-month periods when they can pay only the interest on the loan, reducing the bill to around £100 per month for those that took out the maximum amount.