Why state investment will be key to reviving Britain’s economy
Earlier this year, the launch of the coronavirus business interruption loans scheme (CBILS) and the bounce back loan scheme proved to be a milestone moment for hundreds of thousands of SMEs across the UK. It provided them with the lifeline they needed – quick and easy-to-access small loans, straight into their bank account. For many SMEs, this was the first time they had managed to get access to financial support.
However, the most recent figures show that while 623 large businesses have borrowed the relatively small sum of £4.6bn through the coronavirus large business interruption loan scheme (CLBILS), 1.2 million smaller employers have accessed £47.3bn from the other two buckets of cash on offer from the Treasury–the bounce-back loan scheme and the coronavirus business interruption loans scheme (CBILS).
Although both schemes have helped to plug the gap for many small businesses across the UK, it is unclear how these loans will be repaid, and many SMEs may find themselves burdened with an unsustainable debt. Recent reports have suggested that as many as 40% of these loans will never be paid back.
Some economists have implored Sunak to set up a system that would allow business owners to opt for a debt-for-equity swap. This would allow the government to exchange its loans for a share in the business. Each individual business owner would decide whether it wants to give the state a stake, but there are plenty of entrepreneurs who would be prepared to give away a percentage of their company if it meant they could afford to make crucial investments.
Private equity through schemes such as the Enterprise Investment Scheme (EIS) will be crucial to unlocking the growth potential of these firms. The funding that schemes like this offer, could help give SMEs the freedom to grow and scale without worrying about the added complications of servicing debt. The last time that the Government-backed EIS was extended it resulted in a significant jump in private investment into small businesses. Replicating this effect with new, or increased, incentives would provide a much needed boost to a section of the economy that is most in need.
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