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What is a Pay As You Grow Loan?

Business Finance

What is a Pay As You Grow Loan?

Updated: 30 October 2023

Pay As You Grow is a funding method introduced by the British Business Bank in response to the COVID-19 pandemic. It offers flexible repayment options for businesses that have taken out Bounce Back Loans. With extended loan terms, interest-only repayments, and payment holidays, a Pay As You Grow loan provides businesses with a high level of flexibility in how they pay back what they owe.

What is Pay As You Grow?

Pay As You Grow is an innovative funding method introduced by the British Business Bank to provide support to businesses that obtained Bounce Back Loans during the COVID-19 pandemic. It offers flexible repayment options.

What sets Pay As You Grow apart from traditional loans is its emphasis on providing businesses with increased flexibility and breathing space when it comes to loan repayments. With the Pay As You Grow programme, businesses have three key options to choose from, allowing them to adapt their repayment plans according to their financial circumstances. These are as follows.

Extend the loan term from the standard six years to up to ten years

This extension helps to reduce the monthly repayment amount, making it more manageable for businesses facing financial challenges.

Interest-only repayments

This allows borrowers to make payments that cover only the interest for a specified period of up to six months. This option provides temporary relief by reducing the immediate financial burden on businesses.

Repayment holidays

Businesses can request to temporarily halt repayments for up to six months. During this period, no payments are required, but interest continues to accrue. This option provides a significant break from repayments, allowing businesses  to focus on recovery and stabilising their finances.

The benefits of a Pay As You Grow loan

A Pay-As-You-Grow loan offers several advantages:

Fixed fee structure

Unlike some loans that involve variable interest rates, Pay As You Grow loans operate on a fixed fee basis. This means that businesses know the exact amount they need to repay, providing clarity and predictability when it comes to financial planning.

Flexibility in uncertain times

Pay As You Grow loans are designed to cater to businesses that are uncertain about their future sales projections or operate in seasonal industries. With options like extended loan terms, interest-only repayments, and payment holidays, businesses have the flexibility to adjust their repayment schedules based on their financial circumstances.

Tailored support

Pay As You Grow loans recognise the unique circumstances and challenges faced by businesses due to the pandemic. The programme allows businesses to work directly with their lenders to explore the repayment options that best suit their needs, ensuring that the support provided is customised and aligned with the specific circumstances of each business.

Is Pay As You Grow still available?

The original Pay As You Grow scheme is no longer accessible. This was introduced by the British Business Bank in response to the COVID-19 pandemic. It was specifically intended to offer flexible repayment options for Bounce Back Loan (BBL) borrowers.

There are, however, alternative financing options that can provide flexibility in how you manage your finances. 

Pay As You Grow alternatives

An alternative funding option similar to a Pay As You Grow loan is a revenue-based loan (RBL). With an RBL, a lender offers funds to a business in return for a portion of the business’s future revenue. In contrast to conventional loans that demand fixed monthly payments, a revenue-based loan provides greater repayment flexibility by linking the loan payments to the business’s revenue.

A merchant cash advance (MCA) works on a similar principle, allowing you to borrow a lump sum and repay a percentage of sales made by credit card. An MCA is a popular choice for retailers or hospitality businesses that take a lot of card payments. 

At Funding Circle we offer FlexiPay, a line of credit that comes with a business credit card. It allows you to spread business costs over 3 months, giving you more control over your finances. 

30/10/23: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.

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