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The Federation of Small Businesses (FSB) is calling on the Government to introduce new measures to help companies struggling with COVID-related debt, including employee shared ownership.
The FSB has said that businesses are facing “unmanageable” levels of Coronavirus debt – with four out of 10 small businesses describing their indebtedness in this way.
Already nearly half of those surveyed in the FSB’s latest study had used personal finance products, such as personal credit cards, overdrafts and loans, to keep their businesses going.
Instead, the small business organisation is suggesting that a system of shared ownership is introduced under which emergency 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.
Preference shares, also referred to as preferred stock, are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued.
This move would take the debt off the company’s balance sheet, according to the FSB and help businesses manage their debts.
As well as suggesting the new system of ownership, the FSB has also called for the Government to turn Coronavirus emergency loan repayments into tax owing – effectively nationalising a portion of small business debt.
Another proposal is to extend the existing Bounce Back Loan Scheme 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.
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.”