Business debt will slow the economic recovery from
coronavirus unless steps are taken to make the burden more
manageable for small and mid-sized companies, the Institute of
Directors said today [Wednesday].
In a poll of 720 company directors, half (51%) said that
debt their organisation had taken on during the crisis would have
a negative impact on their recovery, while even more (57%) said
it would hold back their investment plans over the next two
years. Less than a third said that debt they had built up would
have no impact on either their recovery or medium-term spending
plans.
The IoD said government, banks, and businesses would need
to work together to deal with the 'debt mountain' firms face, to
enable them to invest and heal the economy. The institute has
proposed that small companies should be able to convert
government-backed loans into 'student loans', with repayments
kicking in once the business has turned a profit. Companies would
pay a percentage of what they earn over a certain time period, in
a manner similar to student loans. This could give small
businesses more breathing space to invest and grow as they make
repayments, while potentially lowering the risk of loan
defaults.
Of those surveyed who had taken on debt, four out of ten
said that restructuring into the student loan format would be
best for their organisation, compared with only 5% who favoured
converting the debt into equity held by a public body. The
polling was conducted between 20 and 29 May.
To spur investment in the shorter term, 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’.
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."
