The government should consider converting “unmanageable” levels of Covid debt into shared company ownership, the Federation of Small Businesses has urged.
Four out of 10 small businesses called their level of debt “unmanageable” in a FSB report published over the weekend.
Nearly half of those surveyed used personal finance products such as personal credit cards, overdrafts and loans to keep their businesses going.
Shared ownership means employees owning shares in the businesses they work for. Famous employee-owned businesses include John Lewis and, most recently, Richer Sounds, which was taken over by its employees in May last year.
Currently, 370 UK companies are categorised as employee-ownership SME businesses, 61 per cent have changed ownership in just the past five years.
Employee-owned businesses in Britain are currently worth £20.1bn between them, employing 178,000 people.
The FSB told The Times that emergency Covid debt could be assigned to an employee ownership trust in return for the trust getting preference shares in the business of the same value, plus an option to acquire 10 per cent of the business when there is a future change of control. Turning Covid debt into shared ownership would move the debt off the company’s balance sheet, the FSB said.
With the deadline for repayments through the Bounce Back Loan Scheme (BBLS) fast approaching, the FSB also called for the government to turn coronavirus emergency loan repayments into tax owing. This would require the government to nationalise a portion of small business debt, perhaps through the creation of a “bad bank”. More than half of those SMEs surveyed carrying debt believed converting loans to a tax liability would help their business.
>See also: City grandees call for small business Covid debt to be turned into tax owing
The FSB also called for the VAT deferment payment window to be extended to March 2022, along with the interest-free grace period for the BBLS.
Another proposal is to extend the existing BBLS Pay As You Grow model – which allows borrowers to extend the length of the loans, make interest-only payments and request repayment holidays – to all commercial small business lending.
Otherwise, warned the lobbyist, Britain will face a “small business credit crunch” which will drive thousands of otherwise viable businesses to the wall.
Martin McTeague, national vice chair of the FSB, said: “Implementing a model whereby firms start repaying debt when they’re making a profit again could mark a positive way forward, as could getting employees more involved in the ownership and running of firms.
“Hundreds of thousands of viable small businesses have taken on sizeable debts to see them through to the other side of the Covid crisis. With emergency loan repayments fast approaching, and festive trade hugely disrupted, we need the government to intervene swiftly to avoid a small business credit crunch in the spring.”
Further reading
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