On 24th September 2020, the Chancellor Rishi Sunak announced the government’s latest plans for supporting businesses through the coronavirus crisis. These include changes to how and when government-backed loans need to be repaid.
Here, we outline what the changes mean for Starling business customers who took out a loan through the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS).
What’s changed for Bounce Back Loans?
The Chancellor announced the following changes under a new ‘Pay as you Grow’ scheme. If the time comes for you to make your first repayment, 12 months after taking out the loan, the new measures could help you:
- Maximum loan term: If your business is struggling to cover repayments, you can apply to extend your Bounce Back Loan term from six to ten years. At the moment, six years or ten years are the only options, you can’t extend to seven, eight or nine years. An extension from six to ten years would mean paying more interest over the lifetime of the loan - so isn’t necessarily the right choice for all.
- Interest-only periods: If you’re struggling to repay your Bounce Back Loan, you’ll be able to make up to three requests to pay interest-only, for periods up to six months.
- Payment holidays: If you’re experiencing very serious difficulty in repaying your Bounce Back Loan, you can request a payment holiday to pause repayments all together, but only after having made six repayments. You can only make one payment holiday request, for a period of up to six months. Remember that if you move to interest-only or take a payment holiday, you’ll end up paying more in interest overall.
The Chancellor announced the following change on loan applications:
- Application deadline: You now have until 30th November 2020 to send in a loan application. If you already have a Bounce Back Loan, you can’t apply for a second one. If you’ve already registered your interest, you won’t need to do so again - we’re processing requests as quickly as we can and will reach out to you on an individual basis.
For Bounce Back Loans, the terms below remain the same:
- The loans are interest-free for the first 12 months, and no repayments are due within this period.
- They are 100% backed by the government.
- There are no arrangement fees or early repayment charges.
- The rate of interest is fixed at 2.5% (payable after 12 months, subject to business interruption payment eligibility).
Can I top-up my Bounce Back Loan?
The short answer is no, you can’t increase your Bounce Back Loan and you can only have one Bounce Back Loan.
The long answer is that you could potentially request to move from BBLS to CBILS. For example, if you took out a loan of £40,000 and now require more than £50,000 in total. All loans that come under CBILS are subject to a full credit assessment and must be more than £50,000.
CBILS loans are priced according to your circumstances and usually have higher interest rates than BBLS. Should you apply to move from BBLS to CBILS, the new terms would be explained to you by our Lending Team.
What’s changed for CBILS?
Loan applications for CBILS can be received until 30th November 2020.
However, the government’s Pay as You Grow repayment system only applies to Bounce Back Loans. Requests to change to the maximum loan term for CBILS, as well as interest-only periods and payment holidays, will be looked at on a case by case basis.
What does this mean for Starling Customers?
The BBLS and CBILS schemes were announced in April 2020, meaning that there are still several interest-free months ahead until anyone needs to start making repayments.
Pay as You Grow - BBLS
If the time comes for you to make your first repayment, 12 months after taking out the loan, and you’re worried about being able to cover it, you can apply to change your maximum term from six years to ten years.
Changing your maximum loan term would reduce the amount you need to repay each month, but would increase the amount of interest you pay overall. If the monthly repayment amount is too high for you to cover, that’s when you can request a period of interest-only payments or a payment holiday, both up to six months.
Remember that you can only request a payment holiday once you have made at least six payments.
And for CBILS
Loan applications can now be received until 30th November 2020. We’ll look at requests for interest-only periods, full payment holidays and changes to the maximum loan term on a case by case basis.
The changes outlined above reflect the changes as announced by the government on 24th September. We’re awaiting confirmation of the full details and will share these when they become available to us. The above article is intended as general information and does not constitute advice in any way. You should take independent advice if you have any questions about your specific circumstances.