Chancellor of the Exchequer, Rishi Sunak has announced that small firms would get more time to repay state-backed loans taken out to help survive the coronavirus lockdown.

The changes include giving companies an option to extend the length of the loan from six to ten years under a “pay-as-you-grow” initiative.

Sunak said the move was to give companies ample time without pressure to repay the loans.

About £45bn has been borrowed by more than 1.4 million small firms under the Bounce Back Loan scheme, which offers cheap loans of up to £50,000.

Under the existing scheme, firms get interest-free loans for the first year but will start repaying the money in May, when economic recovery is still expected to be weak.

Under the new arrangements, announced late on Friday, businesses will have the options of extending the length of the loan from six years to ten while making interest-only payments for six months, with the option to use this up to three times throughout the loan.

The firm can also pause repayments entirely for up to six months.

Mr Sunak said the plan allowed firms to “pay-as-your-grow”, offering flexible repayment options as the economy strengthens.

He 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.”

A recent report by the National Audit Office said up to 60% of loans made under the bounce back scheme may never be repaid.