Banks propose student loan-style scheme for struggling UK businesses

Up to three million jobs and more than 750,000 small and medium-sized businesses are at risk if companies cannot defer repayment on government-guaranteed loans.

The banking lobby group TheCityUK has said recapitalisation of these loans is “essential” to protect SMEs, and businesses will need help tackling debt which could “hold them back or drag them under”.

Their report calls for the creation of a new student loans-style scheme, where businesses could convert unmanageable loans into means-tested tax liabilities.

The government has guaranteed nearly £43bn in loans to businesses across the country, with the Treasury digging deep to help a faltering economy hit by the coronavirus crisis.

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As ministers ordered Britons to stay at home unless they had to shop for food in March, Chancellor Rishi Sunak promised to do “whatever it takes” to support the companies whose business would be decimated by the decision.

It meant launching three government-backed loans, the coronavirus business interruption loan scheme (CBILS), a similar scheme for larger businesses called CLBILS, and the bounce-back loans, which help out some of the smallest companies.

The Treasury is backing more than 80% of the loans – up to 100% – but the guarantees are to the lender rather than the borrower, so companies unable to meet the repayments of their share of the loan would still default.

Repayments are due to begin in March 2021, but TheCityUK warned there was a need to “act quickly” given furlough schemes and rent deferrals are due to come to an end.

The UK Recovery Corporation, as proposed by the group chaired by HSBC chairman Mark Tucker, would convert the loans into “new products allowing them to manage their debt in a more sustainable way and achieved without being put into default”.

The proposed Business Repayment Plan, for those using the Bounce Back Loan Scheme or CBILS loans under 250,000, would see the loan balance turned into a tax obligation and repaid through the tax system, much like student loans are repaid now.
Larger loans of up to £1m under the CBILS would be converted into an unsecured loan or preferred share capital.

Sir Adrian Montague, Chairman of TheCityUK’s leadership council, said: “Covid-19 is a 100-year storm which has caused untold economic damage.

“The government’s support schemes have been the essential sandbags holding back the flood, protecting businesses and saving jobs.

“However, with tough trading conditions forecast to remain, paying back these loans will be challenging for many SMEs. To secure a strong recovery, action must be taken now to help them sustainably retrench, rebuild and return to growth.”

Omar Ali, chairman of the group’s recapitalisation technical working group said “hundreds of thousands of businesses” could struggle with debt the have built up during the pandemic.

He added: “Our analysis suggests that some sectors may enter into difficulty as early as autumn this year.

“That is why taking action now is vital if we are to help businesses get back onto a stable footing as we emerge from the pandemic, and will ultimately support the UK’s economic recovery and fuel its future return to growth.”

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