The Daily Telegraph - Business
Convert Covid loans into shares for employees, urge small firms
STRUGGLING businesses that took out state-backed loans to help them through the pandemic should be allowed to convert the loan into shares for employees and write off the debt, according to a new study.
The Federation of Small Businesses (FSB) and the Ownership at Work think tank argued that doing so would spur productivity and protect jobs as the economy recovers from coronavirus.
More than 1.5m loans have been approved under the so-called Bounce Back loans scheme worth £46.5bn. However, the Office for Budget Responsibility has predicted that up to 40pc of borrowers could default.
Martin McTague, the FSB’s national vice chairman, said: “The Government could leave it to the banks to enforce collection, thereby risking the destruction of thousands of ultimately viable companies, increased unemployment as the furlough scheme winds down, and damage to local communities.
“But we’re saying there is another way: give those who are cash-strapped the option to swap debt for employee equity. Doing so would protect livelihoods, spur productivity and pave the way for a small business-led recovery as we seek to emerge from the deepest recession in modern history.”
Under the Bounce Back loans introduced in May last year, small businesses were able to borrow between £2,000 and £50,000 from banks with no repayments due for 12 months and the Government providing a 100pc guarantee to lenders.
Under the FSB’s proposed plan, struggling businesses would be allowed to convert the loans into shares held in employee ownership trusts, with lenders claiming their guarantee from the Government.
Nigel Mason, an Ownership at Work fellow, said: “Replacing unaffordable debt with an employee ownership stake can protect smaller companies in a way that ultimately benefits everyone involved.
“Business owners keep the doors open, supercharge employee motivation and have a new patient shareholder. Employees keep their jobs, can share in future profits and have a stronger voice in the business.”
He argued that any hit to the Government from the loss of loan repayments would be outweighed by keeping companies afloat and avoiding lost tax revenues.
In February, the Chancellor relaxed terms to allow businesses to pay back the loans over 10 years as opposed to six, and pause repayments.
Sam Woods, chief executive of the Prudential Regulation Authority, warned at the time of a wave of insolvencies and “significant” pressure on banks’ capital positions.
Number of loans, worth £46.5bn, approved under the Government’s Bounce Back loan scheme that launched in May 2020