Pay As You Grow (PAYG) is a set of flexibilities attached to every Bounce Back Loan that lets a director extend the repayment term, switch to interest-only for a period, or take a short payment holiday. It was built into the scheme so that companies still trading but short of cash could ease their monthly outgoings without defaulting.
This article explains what a pay as you grow bounce back loan request actually changes, how to ask your lender for it, and what your options are if even the reduced payments are more than the business can afford.
What Pay As You Grow actually offers
Every Bounce Back Loan came with the same PAYG package, regardless of which bank or lender issued it. There are three separate flexibilities, and a director can use more than one over the life of the loan:
- Term extension — stretch the original six-year loan to ten years, cutting the monthly instalment.
- Interest-only periods — pay only the interest for six months at a time, up to three times across the loan.
- Payment holiday — pause repayments entirely for up to six months, available once, usually after the first six repayments have been made.
None of these options change the amount originally borrowed or the 2.5% fixed interest rate. They simply reshape when and how much is repaid, giving a struggling business breathing room while it stabilises.
Extending the term to lower monthly payments
The most widely used PAYG option is extending the loan term from six years to ten. Because the same balance is spread over a longer period, the monthly repayment drops significantly — often by close to a third.
This suits a company whose turnover has recovered enough to keep trading, but not enough to comfortably meet the original schedule. It is a one-off change: once the term is extended, it cannot usually be extended again. Total interest paid over the life of the loan will be higher, since the balance takes longer to clear.
Interest-only periods and payment holidays
Where cash flow is tight for a defined period rather than permanently, an interest-only spell can help. For six months, repayments cover only the interest accruing, not the capital, which lowers the monthly amount without wiping out progress on the loan. This can be requested up to three separate times, though not consecutively without lender agreement.
A payment holiday goes further — no repayments at all for up to six months. It is available once during the life of the loan, typically once the borrower has made at least six monthly repayments. Interest still accrues during the holiday, so the balance grows slightly, but nothing is due until the holiday ends.
Lenders generally allow interest-only periods and a payment holiday to be combined with a term extension, so a director facing a genuine short-term squeeze has several ways to reduce pressure at once.
How to request PAYG from your lender
PAYG is applied for directly with the bank or lender that issued the Bounce Back Loan, not through Harbourfirst or any other introducer. In practice this means:
- Logging into online banking or contacting the lender's dedicated Bounce Back Loan support line.
- Selecting the PAYG option needed — term extension, interest-only, or payment holiday.
- Confirming eligibility, which is usually automatic if repayments are up to date.
- Receiving written confirmation of the new repayment schedule before it takes effect.
Most lenders process straightforward PAYG requests quickly, often within a few working days, and there is no fee for using any of the three options.
When PAYG isn't enough to fix the problem
PAYG eases a temporary cash flow squeeze. It does not solve a structural problem where the company simply cannot generate enough income to cover its costs, including the loan, on any realistic schedule. If turnover has fallen permanently, or losses are ongoing, extending the term or taking a holiday only delays the point at which the shortfall becomes visible again.
Directors sometimes use every PAYG flexibility in turn — term extension, then interest-only, then a payment holiday — and still find repayments unaffordable once normal terms resume. That is a sign the underlying issue is solvency, not just timing, and needs a different response.
Next options if the company is still insolvent
Where the company owes more than it can pay, including the Bounce Back Loan and other creditors, PAYG alone will not resolve the position. At that stage it is worth speaking to a regulated insolvency practitioner about the formal options available, which can include a Company Voluntary Arrangement, administration, or an orderly liquidation. Continuing to trade while insolvent carries personal risk for directors under the Insolvency Act 1986, including potential wrongful trading claims if losses are allowed to build unreasonably.
If repayments have already been missed, our guide on Can't Repay Your Bounce Back Loan? Options Explained sets out what typically happens next and how lenders usually respond. Where a loan has gone into arrears, Bounce Back Loan Default: What Happens Next? covers the recovery process in more detail. And if closing the company is looking like the only realistic route, Closing a Company With a Bounce Back Loan explains how that works when the loan is still outstanding.
Frequently asked questions
Who is eligible for Pay As You Grow?
Any company that took out a Bounce Back Loan is eligible for all three PAYG options, subject to the specific conditions of each — for example, the payment holiday usually requires six repayments to have already been made.
Does using Pay As You Grow affect my credit score?
Using PAYG as intended is not a default and should not itself damage the company's credit record. Missing agreed repayments, by contrast, is reported as arrears and can affect future borrowing.
Can I apply for Pay As You Grow more than once?
Yes, within limits. The term extension is available once, the payment holiday is available once, and interest-only periods can be used up to three times across the life of the loan.
Will Pay As You Grow reduce how much I owe?
No. PAYG changes the repayment schedule, not the amount borrowed. Interest continues to accrue during interest-only periods and payment holidays, so the total repayable can be slightly higher.
What happens if I still can't afford repayments after using PAYG?
At that point it is worth discussing the company's position with a regulated insolvency practitioner, who can explain the formal options for dealing with an unaffordable Bounce Back Loan alongside other debts.
This article is general information, not legal, financial or insolvency advice, and does not cover every circumstance. Directors should speak to a regulated specialist about their own situation.
If you would like to talk it through, Harbourfirst can introduce you to a regulated insolvency specialist — start an enquiry.