Lancashire business group calls for loans to be 'written off' and replaced with employee ownership trusts

The Lancashire-headquartered Federation of Small Businesses has called on the Government to help struggling firms by converting state-backed loans into employee ownership trusts.

Tuesday, 1st June 2021, 3:46 pm
Updated Tuesday, 1st June 2021, 4:26 pm
Many small firms have taken on emergency loans they may not be able to repay

The Blackpool-based FSB fears that many small firms may not be able to pay back their coronavirus loans.

So it is suggesting offering struggling companies the option to convert state-backed loans into employee ownership trusts (EOTs) to protect livelihoods and spur productivity.

It is feared that up to 40 per cent of “bounce back” borrowers could default

The FSB and Ownership at Work have launched ‘A Shares for Debt Recovery Plan’.

It outlines routes through which bounce back loans – 100 per cent state underwritten facilities worth up to £50,000 launched at the start of last year’s lockdown – could be converted into EOTs in order to ensure the survival of viable businesses

The groups propose granting struggling small companies a time-limited amnesty under which bounce back loans would be written off in exchange for all-employee equity stakes vested in EOTs.

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.

“But we’re saying there is another way: give those who are cash-strapped the option to swap debt for employee equity.

"Doing so would protect livelihoods, spur productivity and pave the way for a small business-led recovery.”