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Call to turn bounce back loans into employee equity

Debt, money etc

Small firms are trying to make the sums add up

Struggling companies should be given the option to convert emergency bounce back loans into employee equity stakes, say small firm representatives.

Thousands of firms have received 100% state underwritten loans worth up to £50,000.

Turning them into employee ownership trusts would help viable businesses survive, say the Federation of Small Businesses and Ownership at Work who are today launching a Shares for Debt Recovery Plan.   

More than 1.5 million bounce back facilities have now been approved, with a collective value of more than £46.5 billion.

However, there is concern that emergency loan initiatives have entrenched a lack of competition in the small business banking sector.

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Over the winter, FSB 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 national 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.”

Ownership at Work fellow and report author Nigel Mason 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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