The Federation of Small Businesses (FSB) is one of the partners behind a new report which recommends offering struggling companies the option to convert state-backed loans into employee ownership trusts (EOTs).
FSB and Ownership at Work (OaW), Ownership at Work, a charitable independent think tank that aims to raise understanding and awareness of the impact of employee ownership, say it will protect livelihoods and spur productivity
According to the Office for Budget Responsibility, 40% of Covid-19 bounce-back loan borrowers may default.
Giving firms the option to convert their loans into employee equity stakes will “pave the way for a small business-led recovery as we seek to emerge from the deepest recession in modern history”, the new FSB/OaW report says.
The two organisations are today (May 31) launching a Shares for Debt Recovery Plan, outlining routes through which bounce-back loans – 100% state underwritten facilities worth up to £50,000 launched at the start of last year’s lockdown – could be converted into EOTs in order to ensure the survival of viable businesses and help close the UK’s productivity gap.
The groups propose granting struggling small companies a time-limited amnesty under which bounce-back loans would be written off in exchange for all-employee equity stakes vested in EOTs.
When the bounce-back loan scheme launched we thought we’d have the pandemic under control by Christmas.”
Martin McTague, FSB vice-chairman
Private lenders providing the bounce-back facilities would write off the loans and claim their 100% UK Government guarantees.
Nearly 90% of bounce-back facilities have been provided via the UK’s biggest five banks, sparking fears that emergency loan initiatives may have further entrenched a lack of competition in the small business banking sector.
More than 1.5 million bounce-back loans have been approved, worth a total of more than £46.5 billion.
Credit crunch warning
FSB has previously warned of an impending “small business credit crunch” as the share of its membership with debt describing their borrowing as “unmanageable” soared from 13% to 40%.
FSB vice-chairman Martin McTague said: ”When the bounce-back loan scheme launched we thought we’d have the pandemic under control by Christmas.
“That’s not been the case, so there’s understandably going to be a lot of small companies struggling to make the bounce-back loan repayments that are now kicking in.
“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.”
Nigel Mason, of OaW, said: “In times of adversity businesses know they have to innovate.
“Replacing unaffordable debt with an employee ownership stake can protect smaller companies in a way that, ultimately, benefits everyone involved.”
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