Could Bounce Back debt be turned into employee equity?

New research shows that despite signs of strong economic bounce back, 15% of UK owner-managed businesses are in a moribund state. Could converting state-backed loans into Employee Ownership Trusts (EOTs) ensure the survival of cash-strapped companies and spur productivity?

Unaffordable debt

As the first tranches of the state-backed loans are due, many businesses will be considering their repayment options. Office for Budget Responsibility (OBR) warns 40% of bounce back borrowers could default. And while some firms have become more resilient in the pandemic, worries over unaffordable debt, coupled with the uncertainty over trading conditions and staff shortage, remain the biggest challenge for many business owners.

FSB and Ownership at Work recently presented “A Shares for Debt Recovery Plan” which outlines a route for turning Bounce Back debt into employee equity stakes to aid businesses recovery. According to the plan, qualifying businesses would be offered a time-limited amnesty under which BBLs would be written off in exchange for all-employee equity stakes vested in EOTs.

Calm before the storm

Currently, the corporate insolvency figures continue to defy gravity, however, with the furlough scheme winding down and without access to readily available funds within the coming months, many viable businesses could fold. Could a time-limited amnesty for BBLS borrowers in exchange for employee equity stakes provide a boost for SMEs?

Since the number of employee-owned firms is rising rapidly in the UK, it might just be the way out of debt, protect jobs, strengthen communities and pave the way for a small business-led recovery.

Seeking advice

If you are unable to pay the Bounce Back loan, please seek advice from a professional adviser as soon as possible. In all cases, the earlier you seek help, the more options will be available to you: from business turnaround to better funding and restructuring options. Contact us today for a free consultation on 0800 118 2948.

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