UK banks expect deluge of ‘pay as you grow’ requests from SMEs

Britain’s banks are preparing for an influx of hundreds of thousands of requests from small businesses to adjust their coronavirus rescue loans, as economic uncertainty encourages even healthy and cash-rich companies to take payment holidays or extend their borrowing terms.

Banks lent more than £46bn to small businesses through the Bounce Back Loan Scheme, which launched a year ago on Tuesday, offering loans of up to £50,000 to help businesses ride out the pandemic. The loans came with a 12-month interest-free period, meaning that the first borrowers are due to begin making repayments this month. 

However, at least 42,000 companies have already applied for extensions or repayment holidays on the loans, according to bankers and Financial Times calculations, and volumes are expected to jump from next week as more banks begin offering such options and repayments come due. NatWest alone has written to more than 100,000 borrowers warning them that their loans fall due in the next 60 days.

Nick Hunter, founder of Falmouth-based recruitment firm Head Hunter Resourcing, said: “I’ve been waiting for the last minute to see if any other economic assistance comes up from the Treasury [before repayments start] — it’s a long shot, but after that I’ll pull the trigger [and request an extension].”

The government announced so-called “pay as you grow” options earlier this year because of fears that the start of repayments in May would prompt a damaging “cliff edge” of early defaults from businesses that were still struggling with the impact of the pandemic.

However, even thriving businesses that have not spent the money they borrowed last year are planning to take advantage of the offers.

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Ian Stuart, who runs a mortgage brokerage in Bristol that has seen its monthly turnover grow by 20 per cent during the pandemic, said he planned to take a payment holiday and extend the term of his £29,000 loan from HSBC as soon as the offer became available on Tuesday. 

“I’m not going to get that type of borrowing from a bank again in my lifetime on the terms that they are offering . . . I could repay the loan now, but why would I repay that money when I could use that money to grow my business and make more money off the back of it?”

Bankers say billions of pounds of money received through bounce back loans — up to 30 per cent of the total amount lent out by some banks — is still sitting unused in customers’ accounts. This has contributed to low early take-up for the Recovery Loan Scheme, which launched last month to replace the bounce back programme, offering more expensive debt.

William Chalmers, chief financial officer of Lloyds Banking Group, said: “Interest-free periods are coming to an end over the course of the summer so we’ll be looking at those closely to see how they progress . . . I think for many people [pay as you grow] will make sense. We will do what we can to facilitate it and I would expect reasonable take-up.”

NatWest said about 75 per cent of the 14,000 borrowers who had applied to pay as you grow had requested loan extensions, with the remainder requesting six-month repayment holidays or interest-only periods. Two people briefed on the early results from other lenders said they had been pleasantly surprised that most borrowers were only choosing to extend their terms rather than request a repayment holiday, suggesting their businesses were not in immediate trouble.

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