The Federation of Small Businesses (FSB) has called for bounce back loan debt to be replaced by employee equity, to pave the way for the economic recovery and protect vulnerable businesses from closure.
In partnership with Ownership at Work, the FSB has published a report which recommends offering struggling companies the option to convert state-backed loans into employee ownership trusts (EOTs). This 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” said the FSB.
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The study – titled ‘A Shares for Debt Recovery Plan’ – suggested that bounce back loan debt could be written off in exchange for all-employee equity stakes vested in EOTs, a vehicle defined in the 2014 Finance Act. The private lenders providing the bounce back facilities would write off loans and claim their 100 per cent government guarantees in these instances.
The report’s authors added that the option would initially be open to borrowers which are constituted as companies by limited shares but could be rolled out to other businesses at a later date.
“When the bounce back loan scheme launched we thought we’d have the pandemic under control by Christmas,” said the FSB’s national vice chair Martin McTague.
“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. 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.
“The overwhelming majority of these loans have been provided by the big five banks. We’ve worked hard to promote competition in the small business banking sector in recent years. It’s vital that this doesn’t become a moment at which the fruits of those labours perish.”