Originally written by Timothy Adler on Small Business
Small businesses should only repay state-backed coronavirus debt once they are back in profit, a centre-right thinktank has argued.
The taxman could claw back emergency COVID-19 funding once businesses are back trading at a profit, argues Onward.
This would be through a surcharge on taxable profits and shareholder salaries, paying off your Bounce Back Loan or Coronavirus Business Interruption Loan.
>See also: Where to find your £1,000 small business lockdown grant
The issue is pressing because, according to the ONS, one in five small businesses are already “zombie” companies – meaning the annual cost of servicing their business debt equals their profits.
And nearly one in 20 firms (4.3 per cent) are technically insolvent with liabilities greater than their assets, due to the levels of debt they have already built up since March. These firms employ an estimated 1.8m workers.
Debt levels have leapt during this year’s lockdown as businesses tapped the government’s emergency loan schemes to meet costs, leaving many overburdened with debt. About £53bn has been loaned to small and medium-sized businesses finance industry lobby group The CityUK estimates that £35bn may not be repaid.
>See also: Lloyds rapped for forcing Bounce Back Loans borrowers to open accounts
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