Chancellor Rishi Sunak has introduced a ‘pay as you grow’ initiative to give companies more flexibility about repaying their loans and the option to tailor payments according to individual circumstances.

Borrowers will be able to extend the length of their loans from six to 10 years, make interest-only payments for six months, or pause repayments for up to six months.

Firms can also choose to make no payments on their loans until 18 months after they originally took them out.

These ‘pay as you grow’ options will be available to more than 1.4 million businesses which took out a total of nearly £45bn through the Bounce Back Loan Scheme.

The scheme launched on 4 May 2020. It provides financial support to businesses across the UK that are losing revenue, and seeing their cashflow disrupted, as a result of Covid-19.

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Businesses can apply for a loan from £2,000 up to 25% of their business’ turnover, with a fixed interest rate of 2.5% for the duration of the loan. The maximum loan amount is £50,000. Under the loan scheme, the government covers the costs of interest for the first year of the loan.

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Chancellor Rishi 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. Lenders will proactively and directly inform their customers of pay as you grow, and borrowers should only expect correspondence three months before their first repayments are due.”

Richard Bearman, managing director at the British Business Bank, said: “Pay as you grow will provide tangible benefits to Bounce Back Loan recipients, many of whom may have accessed the Bounce Back Loan Scheme to borrow money for their business for the first time. The scheme offers greater flexibility to businesses who may need flexibility in paying off their Bounce Back Loan and enables them to manage their repayments more effectively.”