Burden on investment
Offer firms ‘student loan’ format to repay debt, says IoD
Malcolm Cannon: ‘flexibility would allow businesses to get back on their feet‘
Small companies should be able to convert government-backed debt support into ‘student-type loans’, with repayments kicking in once they have turned a profit, says a business group.
Companies would repay a percentage of what they earn over a certain time period, in a manner similar to student loans.
The Institute of Directors says this could give small businesses more breathing space to invest and grow as they make repayments, while potentially lowering the risk of loan defaults.
Of those surveyed who had taken on debt, four out of ten said that restructuring into the student loan format would be best for their organisation, compared with only 5% who favoured converting the debt into equity held by a public body.
The IoD says government, banks, and businesses need to work together to deal with the debt mountain firms face, to enable them to invest and heal the economy and the student loan format may be a solution.
In a survey of 720 businesses the IoD found that company investment will be held back because of the amount of debt firms have taken on to get through the lockdown.
Half of small and mid-sized companies (51%) said the debt they had taken on during the crisis would have a negative impact on their recovery.
Even more (57%) said it would hold back their investment plans over the next two years.
Less than a third said that debt they had built up would have no impact on either their recovery or medium-term spending plans.
To spur investment in the shorter term, the IoD is also calling for incentives allowing firms to reduce their tax liabilities as they invest, to help them quickly adjust to the ‘new normal’.
Malcolm Cannon, National Director of IoD Scotland said “While loans and Government support have, for some, been the difference between surviving or not, we don’t want to lose these businesses once the debt is called in.
“Introducing flexible repayment terms would allow businesses to get back on their feet and return to profit much quicker which in turn would benefit the entire economy.”
Jonathan Geldart, director general of the Institute of Directors, said: “If we don’t deal with the debt mountain businesses have had to take on because of coronavirus, the economy will take much longer to heal.
Using a student loan style system for small companies could provide one way of lifting the burden from British business– Jonathan Geldart
“Understandably, debt can weigh heavily on the minds of business leaders. Many directors will want to pay the bills before they start spending on new projects.
“Even after we emerge from lockdown, investment may be held back, limiting the scope for companies to innovate and expand.
“Using a student loan style system for small companies could provide one way of lifting the burden from British business while still ensuring that those that can pay do. A range of responses will be needed depending on the size and type of business.
“These figures emphasise that while government support has prevented even deeper damage, the work of rebuilding the economy is only just beginning.”
The polling was conducted between 20 and 29 May.