Flip Emergency Covid Debt Into Frequent Possession, Urges Small Companies
The Federation of Small Businesses has called for the government to consider converting “unmanageable” Covid debts into shared corporate ownership.
Four out of ten small companies described their indebtedness as “unmanageable” in an FSB report published over the weekend.
Almost half of the respondents used personal finance products like personal credit cards, overdrafts, and loans to keep their businesses going.
Shared ownership means that employees own shares in the companies they work for. Well-known employee-owned companies include John Lewis and most recently Richer Sounds, which were acquired by their employees in May last year.
There are currently 370 UK companies classified as employee-owned SME companies, with 61 percent having changed hands in the past five years.
UK-owned companies are currently valued at £ 20.1 billion and employ 178,000 people.
The FSB told The Times that an emergency Covid debt could be assigned to an employee-owned trust in exchange for the trust receiving preferred shares of the same value, as well as an option to acquire 10 percent of the business if the future changes Control. Converting Covid debt into shared ownership would remove the debt from the company’s balance sheet, the FSB said.
With the deadline for repayment through the Bounce Back Loan Program (BBLS) coming to an end, the FSB has called on the government to convert repayment of coronavirus emergency loans into tax debt. This would require the government to nationalize some of the small business debt, possibly through the creation of a “bad bank”. More than half of the surveyed SMEs in debt believed that converting credit into tax liability would help their business.
> See Also: City Grandees Call For Small Business Covid Debts To Be Converted To Tax Debts
The FSB also called for an extension of the time window for postponing VAT until March 2022 as well as 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 life of the loans, make interest payments and apply for a repayment vacation, to include all small business commercial loans.
> See also: The bounce-back loan program was extended to the end of March
Otherwise, the lobbyist warned, the UK will face a “small business credit crunch” that will blow thousands of otherwise viable businesses to the brink.
Martin McTeague, National Vice Chairman of the FSB, said, “Implementing a model whereby companies pay back their debts when they return to profit could be a positive way forward and empower employees to become more empowered and run the company.
“Hundreds of thousands of viable small businesses have taken on substantial debt to get them on the other side of the Covid crisis. With emergency loan repayments fast approaching and festive trade severely disrupted, the government needs to act quickly to avoid a spring credit crunch for small businesses. “
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