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Small UK companies that took out a government-backed COVID-19 loan will get more time to repay them.
The Treasury announced on Friday evening that it will “ease the burden” for millions of firms by extending the period during which businesses can make no repayment.
This gives businesses an option to extend the length of the loan from six to ten years under a "pay-as-you-grow" initiative.
Under the changes, companies will also have the option to make interest-only payments for six months, firms can use this up to three times throughout the loan.
Alternatively, companies can pause repayments entirely for up to six months.
Currently, companies get interest-free loans for the first year. But repayments are due to start in May, when economic recovery is still expected to be weak.
According to the Treasury, about £45bn ($62bn) has been borrowed by more than 1.4 million small companies under the Bounce Back Loan scheme, which offers cheap loans of up to £50,000.
Chancellor Rishi Sunak said that the move was to give firms "breathing space to get back on their feet.”
“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,” Sunak said.
He added: "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 chancellor has been under pressure to act amid growing fears the continuing lockdown will lead to a wave of company closures.
The changes will require banks which have been giving out the loans, to contact customers to explain the new options. But, there have been concerns over businesses’ ability to repay the cash and fraud.
A National Audit Office study revealed that up to 60% of loans made under the bounce back scheme may never be repaid.
A separate report found that almost half (49%) of mid-sized businesses say they will struggle to continue staying open if strict lockdown restrictions continue for another two months, a BDO report found, noting that such companies are “a critical part of any post-pandemic recovery.”
It comes as business groups have called on the government to provide a clear exit plan out of lockdown to help businesses reopen.
The Confederation for British Industry (CBI) has urged the government to work with business to best identify economy-critical factors to its roadmap out of the latest COVID-19 lockdown in England.
The business group’s calls come as the government prepares to publish an exit strategy in late February.
In a letter to business secretary Kwasi Kwarteng, the CBI has set out six elements that will help firms plan and prepare in advance of a lifting of restrictions. It says it will also write a letter to the devolved nations government’s next week.
Alongside the roadmap, CBI is also calling for “clear parameters for determining” what, and for how long, economic support measures will be available.
“The plans should develop in lockstep, to ensure that key support measures taper away, without a cliff-edge, ensuring that support is progressively targeted on those sectors that remain closed for longest,” CBI said.
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