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Swap Bounce Back debt for employee equity, say industry experts

Swap Bounce Back debt for employee equity, say industry experts


EOTs can also boost employee motivation

Industry leaders suggest giving struggling companies the option to convert emergency Bounce Back Loans into employee equity stakes to aid businesses recovery.

The Federation of Small Business (FSB) and Ownership at Work are today launching ‘A Shares for Debt Recovery Plan’. This outlines routes through which Bounce Back Loans could be converted into Employee Ownership Trusts to ensure the survival of businesses and help close the UK’s productivity gap.

The groups want to grant small businesses a time-limited amnesty under which Bounce Back Loans would be written off in exchange for all-employee equity stakes vested in EOTs – a vehicle defined by Schedule 37 of the 2014 Finance Act. The private lenders writing the Bounce Back lenders would write off and claim their 100 per cent guarantees in these instances.

The option would initially be open to borrowers who are constituted as companies by limited shares. It could be rolled out to other businesses at a later date.

The groups argue that providing this option to firms would have the dual effect of protecting viable businesses and jobs while spurring productivity. In 2018, the Employee Ownership Association highlighted the benefits of EOTs, especially where productivity is concerned, in ‘The Ownership Dividend’. UK output per hour worked is currently at 16 per cent below the G7 average.

Just under 90 per cent of Bounce Back facilities have been provided by the UK’s biggest five banks, sparking fears that emergency loan initiatives have further entrenched a lack of competition in the small business banking sector.

More than 1.5m Bounce Back facilities have now been approved, totalling over £46.5bn.

>See also: What happens if I can’t repay my Bounce Back Loan?

Over the winter, FSB warned of an impending ‘small business credit crunch’, with the proportion of its membership with debt describing their borrowing as ‘unmanageable’ soared from 13 per cent to 40 per cent.

FSB national vice chair, 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.

Ownership at Work fellow and report author Nigel Mason said: “Replacing unaffordable debt with an employee ownership stake can protect smaller companies in a way that ultimately benefits everyone involved.

Business owners keep the doors open, super-charge employee motivation and have a new patient shareholder. Employees keep their jobs, can share in future profits and have a stronger voice in the business. Whilst Government accepts the loss of some smaller loan repayments, by protecting otherwise viable businesses it invests in boosting the economy and avoids the extra cost of lost tax revenues and impact on individual lives.

“All-employee ownership is the UK’s fastest growing business model for good reason: it helps individuals, businesses and local economies and is precisely the kind of innovative solution Government should be backing to drive post-pandemic recovery.”

Further reading

Pros and cons of employee ownership trusts (EOTs)



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