LONDON (Reuters) – More than 200 of Britain’s top financial experts have joined forces to design initiatives to help small businesses restructure and pay off up to £ 35bn in ‘unsustainable COVID-19 debt’ “.
Recapitalization group CityUK on Thursday proposed the launch of a UK Recovery Corporation (UKRC) to oversee a huge amount of government-guaranteed loans issued since the foreclosure, providing more manageable terms for borrowers and preventing a wave of bankruptcies in the country. charge of the taxpayer.
“COVID-19 is a century-old storm that has caused untold economic damage. Government support programs have been the essential sandbags in containing flooding, protecting businesses and saving jobs, ”said Adrian Montague, Chairman of TheCityUK Board of Directors.
“However, with difficult business conditions expected to remain, repaying these loans will be difficult for many small and medium-sized enterprises (SMEs).”
Businesses are currently scheduled to start repaying government COVID-19 loans in March.
But analysis from financial services firm EY – which led the work for the recapitalization group – suggests that some companies could run into problems as early as the fall, when the government holiday scheme wears off and postponements of rents will end, putting up to 3 million jobs at risk and 780,000 SMEs at risk of insolvency.
The report urged the government to take immediate action, including legislating to enable UKRC to operate effectively.
A spokeswoman for the Treasury said the report was a useful contribution and the department would continue to engage with the industry to support business.
According to the proposals, the government would initially be the main investor in UKRC, but the debt could then be sold in portfolios or securitized and bought by private investors.
UKRC-backed businesses could either access a “business repayment plan” to convert state-guaranteed loans of less than £ 250,000 into means-tested tax obligations.
Companies with larger debts of up to £ 1 million could access the Business Recovery Capital initiative to convert crisis loans into preferred shares or long-term subordinated debt, repayable over a longer period of 8 to 10 years old.
Both products would ensure that SMEs do not give up any capital.
The final option is the creation of a new growth capital fund, Growth Shares for Business (GSB), which would provide capital to replenish cash reserves or stimulate recovery.
Miles Celic, managing director of TheCityUK, told reporters that banks are aware of the potential reputational risks of pursuing bad debt claims from distressed businesses, but said a proposed independent review system should help to ensure equitable results.
Several lenders, including the state-backed Royal Bank of Scotland RBS.L have been criticized by politicians for mistreating struggling small businesses after the 2007-09 financial crisis.
Omar Ali, managing partner of EY’s financial services in the UK, said the recovery company could help collect longer-term debts, adding that it is ultimately up to the government to decide on the criteria for viability of the different programs.
Reporting by Sinead Cruise and Iain Withers; Editing by Nick Macfie