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finance

Bosses call for 'student loan' plan to defer Covid repayments


SMEs should not have to pay back coronavirus loans until they turn a profit, says the Institute of Directors.

The IoD warned that debt would hamper businesses’ recovery from the crisis and discourage investment unless steps are taken to make the repayment burden more manageable.

Just over half of UK 720 company directors polled by the IoD claimed debt would have a negative impact on their recovery, while 57% said it would hold back their investment plans over the next two years. Less than a third said it would have no impact on either.

The institute called for small companies to be allowed to convert government-backed loans into ‘student loans’, with repayments kicking in only when the business turned a profit. Companies would pay a percentage of what they earn over an agreed period.

Of those surveyed who had taken on debt, four out of 10 backed the student loan format would be best for their organisation. Only 5% favoured converting the debt into equity held by a public body.

To spur investment, the IoD is also calling for incentives allowing firms to reduce their tax liabilities as they invest, to help them quickly adjust to the ‘new normal’.

Malcolm Cannon, national director of IoD Scotland, said “Although the Scottish business community is resilient, and leaders are accustomed to making tough decisions given recent political and economic challenges, this pandemic has been provided an existential test to many companies both large and small.

“While loans and Government support have, for some, been the difference between surviving or not, we don’t want to lose these businesses once the debt is called in. Introducing flexible repayment terms would allow businesses to get back on their feet and return to profit much quicker which in turn would benefit the entire economy.”

Jonathan Geldart, director general of the Institute of Directors, said: “During the crisis, government loans have been a lifejacket for business, but they could become an anchor dragging back the recovery. If we don’t deal with the debt mountain businesses have had to take on because of coronavirus, the economy will take much longer to heal.

“Understandably, debt can weigh heavily on the minds of business leaders. Many directors will want to pay the bills before they start spending on new projects. Even after we emerge from lockdown, investment may be held back, limiting the scope for companies to innovate and expand.

“Using a student loan-style system for small companies could provide one way of lifting the burden from British business while still ensuring that those that can pay do. A range of responses will be needed depending on the size and type of business.

“These figures emphasise that while government support has prevented even deeper damage, the work of rebuilding the economy is only just beginning.”



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