Thousands of small businesses are due to start repaying Covid support loans this week, when year-long payment holidays start to tail off.
When bounce back loans were launched in May last year, there was a huge rush of applications from companies seeking support as the pandemic escalated. Repayments on loans made in the early days are due from today.
Banks extended £46.5 billion to 1.5 million small businesses in bounce back loans, which are 100 per cent government-backed. About a fifth of borrowers have already asked their banks for more time to repay, with most choosing to extend the term from six to ten years. However, the majority have stuck to the original terms, which should mean that they will start to repay after the 12-month payment holiday.
Whether or not those payments start to flow in will provide the first indications of how businesses are faring and how many loans might have been fraudulent. One senior banker said: “Banks have already stopped fraud by identifying many non-eligible customers at the start. In terms of others, we will start to find out over the next couple of months.”
Under the goverment’s pay-as-you-grow initiative, customers can still opt to extend their loans to ten years, reduce monthly repayments for six months by paying interest only or take a repayment holiday for up to six months.
Martin McTague, of the Federation of Small Businesses, called on banks to pro-actively contact customers “to make them aware of pay as you grow, talking through how best to make use of it and being crystal clear about what doing so could mean for future credit applications”.