Chancellor Rishi Sunak said he wants to provide “breathing space” for businesses struggling during the pandemic by giving them more time to make the first repayment on Government support loans.
The Treasury in September announced “pay as you grow” flexible terms to 1.4 million firms who took out £45 billion worth of “bounce back” loans, which were a lifeline to many as profits tumbled due to coronavirus restrictions.
The fresh offer included giving the option of paying the total sum back over 10 years rather than six and allowing them to choose to pay only the 2.5% interest on the loans.
Mr Sunak also announced at the time that businesses could pause repayments altogether for half a year but only after six contributions had been made.
In a softening of that policy, he has agreed to allow firms to opt for an additional six-month buffer before their first payment is due.
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.
“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.”
But Labour said the Chancellor’s latest changes were “minor tweaks to a policy already more than 20 weeks old”.
Shadow chief secretary to the Treasury Bridget Phillipson said: “He’s clearly out of ideas when it comes to supporting hard-pressed businesses.”
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, told the PA news agency.
“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.
Mr Bearman advised businesses to wait to be contacted and follow the instructions, rather than getting in touch with their bank themselves, as banks would struggle to cope with such call volumes.
Dr Adam Marshall, director general of the British Chambers of Commerce, said: “The bounce back loan scheme has been an important lifeline for many small businesses during the pandemic.”
He said that flexibility had a “crucial role to play in providing firms who have received a bounce back loan with much-needed headroom to manage their repayments through this continued economic storm”.