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
The
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Banks ‘will be pushed’ into closing down SMEs unable to repay Covid debt
by Timothy Adler • • 0 Comments
Originally written by Timothy Adler on Small Business
Banks will be pushed into foreclosing on small businesses unable to repay Covid debt, a City insider has warned.
This is because foreclosing on SMEs unable to repay emergency coronavirus loans will be the only way banks can trigger the government’s guarantee to repay bad Covid debt. Banks would have to prove a loss before they can claim on the guarantee.
The government’s lending schemes have provided nearly £53bn to some 1.2m companies, including £35.5bn worth of bounce back loans — which include a 100 per cent guarantee for small business loans – and £13.7bn through the coronavirus business interruption loan scheme (CBILS).
The Office for Budget Responsibility has warned that in a worst-case scenario, £35bn of the Covid debt will never be repaid. The banks themselves believe that up to half of bounce back loans alone will never be repaid.
A Business Banking Resolution Service survey in May discovered that nearly half of small businesses that have taken out government emergency coronavirus loans do not intend to repay them.
The Treasury has turned a deaf ear to a City of London push for it to set up a bad COVID-19 debt bank, an idea proposed by Lord
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Banks ‘will be pushed’ into closing down SMEs unable to repay Covid debt
by Timothy Adler • • 0 Comments
Originally written by Timothy Adler on Small Business
Banks will be pushed into foreclosing on small businesses unable to repay Covid debt, a City insider has warned.
This is because foreclosing on SMEs unable to repay emergency coronavirus loans will be the only way banks can trigger the government’s guarantee to repay bad Covid debt. Banks would have to prove a loss before they can claim on the guarantee.
The government’s lending schemes have provided nearly £53bn to some 1.2m companies, including £35.5bn worth of bounce back loans — which include a 100 per cent guarantee for small business loans – and £13.7bn through the coronavirus business interruption loan scheme (CBILS).
The Office for Budget Responsibility has warned that in a worst-case scenario, £35bn of the Covid debt will never be repaid. The banks themselves believe that up to half of bounce back loans alone will never be repaid.
A Business Banking Resolution Service survey in May discovered that nearly half of small businesses that have taken out government emergency coronavirus loans do not intend to repay them.
The Treasury has turned a deaf ear to a City of London push for it to set up a bad COVID-19 debt bank, an idea proposed by Lord
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How do I apply for a Coronavirus Business Interruption Loan?
by Timothy Adler • • 0 Comments
Originally written by Timothy Adler on Small Business
How do I apply for a Coronavirus Business Interruption Loan?
UPDATED: Today (July 30), the Coronavirus Business Interruption Loan Scheme has been relaxed to make more SMEs eligible for emergency funding.
Until now, an SME that was classed as an ‘undertaking in difficulty’ was barred from getting access to the loan unless the business was less than three years old. They’d be an undertaking in difficulty if, by deducting accumulated losses from its reserves, it was left with a negative amount greater than half of its subscribed share capital, as of December 2019.
This changes mean that SMEs with fewer than 50 employees and a turnover of less than £9m will not be classed as an undertaking in difficulty, unless they’re subject to insolvency proceedings or receiving certain types of aid. It’s expected to help small businesses that have previously secured private equity and venture capital funding.
Allie Renison, head of Europe and trade policy at the Institute of Directors, said:
“This is a welcome move towards helping more British businesses access much-needed finance. The UID test has caused a lot of frustration, and the IoD has been knocking hard on the door of both government and Brussels
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City grandees call for small business Covid debt to be turned into tax owing
by Timothy Adler • • 0 Comments
Originally written by Timothy Adler on Small Business
The Government should convert the projected £35bn of bad debt from small business owners who have taken out Covid loans into tax owing.
Converting the bad debt into tax that could be repaid over years to HMRC would free up cash better spent on investment and saving 3m jobs.
So say over 250 financial experts led by Aviva chairman Sir Adrian Montague in the long-awaited report from TheCityUK.
TheCityUK Recapitalisation Group calls for the Government to back a “UK Recovery Corporation”, which would manage £35bn of unsustainable debt already Government guaranteed.
>See also: Government should triple equity to invest in businesses to £30bn
Over time, private investors could invest in the UK Recovery Corporation, encouraging the public to back SMEs in Britain, something chancellor Rishi Sunak is keen on.
Depending on how much money they owe, small businesses could either go into a “Business Repayment Plan” to convert unmanageable loans into means-test tax liabilities, or, for larger debts, use “Business Recovery Capital” to convert COVID-19 crisis loans into preference shares or long-term subordinated debt.
Both solutions mean small businesses will not have to give up any equity in their businesses.
>See also: Bim Afolami calls for £15bn Recovery Fund for scale-ups
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City grandees call for small business Covid debt to be turned into tax owing
by Timothy Adler • • 0 Comments
Originally written by Timothy Adler on Small Business
The Government should convert the projected £35bn of bad debt from small business owners who have taken out Covid loans into tax owing.
Converting the bad debt into tax that could be repaid over years to HMRC would free up cash better spent on investment and saving 3m jobs.
So say over 250 financial experts led by Aviva chairman Sir Adrian Montague in the long-awaited report from TheCityUK.
TheCityUK Recapitalisation Group calls for the Government to back a “UK Recovery Corporation”, which would manage £35bn of unsustainable debt already Government guaranteed.
>See also: Government should triple equity to invest in businesses to £30bn
Over time, private investors could invest in the UK Recovery Corporation, encouraging the public to back SMEs in Britain, something chancellor Rishi Sunak is keen on.
Depending on how much money they owe, small businesses could either go into a “Business Repayment Plan” to convert unmanageable loans into means-test tax liabilities, or, for larger debts, use “Business Recovery Capital” to convert COVID-19 crisis loans into preference shares or long-term subordinated debt.
Both solutions mean small businesses will not have to give up any equity in their businesses.
>See also: Bim Afolami calls for £15bn Recovery Fund for scale-ups
Business
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Forgive all small businesses coronavirus debt, urges George Osborne
by Timothy Adler • • 0 Comments
Originally written by Timothy Adler on Small Business
Former chancellor George Osborne has called for all coronavirus emergency debt taken out by small and micro businesses to be forgiven.
Speaking to the Treasury select committee on Wednesday, June 3 alongside two other former chancellors, Mr Osborne said the Government should eventually write off billions of pounds worth of loans to small and micro businesses “who are engines of growth”.
Treasury officials would “hate” the idea, said Mr Osborne, but any recovery will be stymied if small businesses face years strangled by coronavirus debt.
“Even if in a couple years’ time when the corporate sector owes a lot of money – particularly the micro businesses, small businesses who are engines of growth and can be completely held back by large credit burden – I think then the government should look at some sort of debt forgiveness,” he said.
“At some point in the next couple of years you either write them off or, what I expect will happen, is every six months or year the chancellor at the time announces that the lending terms are pushed out, the rates are kept very low and so on.
“But it would be better as a big act of debt
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7 ways to help your Coronavirus Business Interruption Loan get approved
by Mark Perrin • • 0 Comments
Originally written by Mark Perrin on Small Business
During times of financial crisis, businesses are always advised that the key to survival is to keep a close eye on cash flow. But what happens if everything possible has been done and the company needs to secure a business interruption loan to get by? What can business owners do to increase their chances of getting approved and securing the money they urgently need?
Before completing an application form for a business interruption loan, business owners need to understand the true cash picture and how it might change in the future. This involves assessing how the coronavirus crisis could impact cash flow in three, 12, 24 and even 36 months’ time.
Even though it is not mandatory for financial forecasts to accompany applications to the Coronavirus Business Interruption Loan Scheme (CBILS), business owners should avoid committing to any loan without understanding how changes affecting the cash position of the organisation could affect their ability to make repayments in the years ahead.
As well as being a demonstration of management best practice, cash flow forecasts allow business owners to make well-informed decisions about how much money they need to borrow and whether the loan is affordable. Without
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State could take equity in small businesses, suggests Lloyds chairman
by Timothy Adler • • 0 Comments
Originally written by Timothy Adler on Small Business
Lord Blackwell, chairman of Lloyds Banking Group, has suggested the government could end up owning equity in thousands of small businesses.
The Lloyds chairman thinks the government would be better off converting loans it is already guaranteeing into equity stakes in small businesses if loans go bad.
Banks and the government would need to work together to “think about how we transform some of that debt that they’ve accumulated into some other kind of security”, he said.
The Bounce Back Loans scheme, which launched on Monday, May 4, lent over £2bn to more than 69,000 small businesses within its first 24 hours.
The parallel Coronavirus Business Interruption Loan Scheme (CBILS) has lent £5.5bn to 33,812 businesses since its launch on March 23.
Lord Blackwell, 67, told an online seminar organised by City & Financial Global that debts could be converted into equity or an equity-type of security.
Viable businesses
Government and banks “do need to think about what will be required to recapitalise some of those businesses to ensure that they are viable going forward and otherwise viable businesses aren’t forced into insolvency or liquidation”, he said.
Devising a solution “needs working through urgently so that we can give businesses some
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Only one in nine coronavirus emergency business loans are approved
by Timothy Adler • • 0 Comments
Originally written by Timothy Adler on Small Business
UPDATED: Only one in nine UK firms seeking help from the government’s coronavirus emergency loan scheme has managed to secure any cash, claims the British Chambers of Commerce.
Just 13 per cent of all firms who attempted to access emergency coronavirus business loans have been successful, with the majority are still awaiting a decision or being rejected, according to the latest BCC weekly tracker poll.
However, 57 per cent of firms surveyed by the BCC, did not intend to apply for a Coronavirus Business Interruption Loan (CBIL) at all due to concerns they would not be able to repay the loan.
Just 20 per cent of the 700 businesses surveyed said they had attempted to access coronavirus emergency business loans.
>See also: How do I apply for a Coronavirus Business Interruption Loan?
Of those who did apply, 48 per cent said they were still waiting for a decision and 40 per cent said they had been rejected for a loan.
Treasury rejects figures
However, the Treasury rejects the BCC’s figures saying that more than 40,000 applications have already been received for these loans and roughly half have already been approved.
A Treasury spokesman said: “These figures are wrong … lenders are