Rishi Sunak to extend Covid loan repayment time for small businesses

Rishi Sunak to extend Covid loan repayment time for small businesses

Chancellor Rishi Sunak will give small businesses longer to pay back their Covid loans in an effort to stem an expected wave of insolvencies this year.

Sunak will on Monday tell the 1.4m small firms that have borrowed money through the Bounce Back Loan Scheme (BBLS) that they can repay their debts over a much longer timescale, Treasury sources confirmed tonight.

Read more: Government set to write off estimated £31bn of pandemic loans

Roughly £45bn has been paid out to small businesses as part of the relief package, with repayments due to start in May.

Under new plans, dubbed “pay as you grow”, firms will be able to extend their repayment plan from six to 10 years to reduce monthly instalments.

READ MORE  Hundreds gather to protest against Crystal Palace Low Traffic Neighbourhood

Struggling businesses will also be able to choose interest-only repayments or payment holidays for up to six months.

It comes amid warnings that the taxpayer faces huge losses from the government’s emergency Covid loans.

Sam Woods, Bank of England deputy governor and head of the Prudential Regulation Authority, today warned that as much of half of the £45bn paid out could be lost.

He said taxpayers faced a “significant” loss from the bounce back scheme and warned the toughest period was yet to come.

Sunak will say: “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.

READ MORE  Smoke alarms save seven in $400k in east-end house fire

“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.”

Government relief schemes such as furlough payments and loan guarantees have cushioned the impact of the pandemic, but these are set to be wound down in the coming months.

Woods warned of of a wave of insolvencies this year, adding that losses from the £45bn bounce back loan scheme was a “huge issue”.

“Firms which have been sustained by the government support and by all the loan programs and all of that, some of them will actually start to go bust,” he told a London School of Economics webinar.

“We feel good about what’s happened so far but in a way the tougher bit is coming. The government has pushed out a lot of the stress in time, but some will still come through.”

READ MORE  Treasury watchdog to press Chancellor ‘very hard’ to publish economic analysis of Covid-19 restrictions

Almost £71bn has been paid out in government-backed loans since the start of the pandemic.

Read more: Exclusive: MPs call for clarity on Bounce Back Loan replacement as lenders shut door on SMEs

Under the Bounce Back scheme, the government is liable for all of a bank’s losses if the indebted business collapses.

The large British banks collectively hold roughly £260bn of equity capital. Woods described this as a “fairly decent number”, but said it will come under more pressure this year as some corporate loans turn sour.

Source link

Be the first to comment

Leave a Reply

Your email address will not be published.