Crisis Debts Could be Viewed Like Student Loans, Business Institute Suggests

Loans taken on by companies as emergency measures during the COVID-19 crisis could be viewed much like student loans and only repaid once certain financial thresholds have been reached.

That’s according to a proposal put forward by the Institute of Directors (IoD), which has been surveying hundreds of businesses on issues relating to their financial circumstances and their medium-term prospects.

There are clearly concerns that debts taken on in recent months to weather the storm created by coronavirus could seriously hamper performance among UK companies and the wider economy in the coming months and potentially years.

A slight majority (51 per cent) of the company bosses polled by the IoD in May said that their coronavirus debts would have a negative impact on their ability to recover and 57 per cent said their investment plans would be affected across the next two years.

In the view of the IoD, there will need to be action taken by the government, banks and businesses to address the challenges posed by what it describes as a “debt mountain” taken on collectively by companies across the country in recent months.

Small businesses in particular might benefit from arrangements that mean they only pay back their government-backed loans on the basis of whatever amounts of money they’ve been able to generate as profits in a given year.

“This could give small businesses more breathing space to invest and grow as they make repayments, while potentially lowering the risk of loan defaults,” the IoD has said.

Around 40 per cent of the companies asked said that a student loan style repayment arrangement would work best for them.

“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,” said the IoD’s general director Jonathan Geldart.

“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 recent report in the Financial Times quoted several leading big bank directors as suggesting that they expect a large proportion of government-backed Bounce Back loans never to be repaid.