Firms call for Covid loans to become grants

Business groups are also keen to ensure the loans are not enforced strictly if the economic crunch becomes a prolonged downturn that pushes thousands of businesses over the edge. 

It makes sense for the Government to make clear that it will demand repayment to prevent creating a moral hazard where firms take loans even if they have no intention or ability to ever repay, says Roger Barker, head of corporate governance at the Institute of Directors.  

“But if that becomes a macroeconomic problem to the extent that all this debt is actually going to go to be a burden on recovery and block recovery, in a macro sense, then it becomes a bigger issue,” he says.

If that nightmare scenario comes to pass, the Government should not simply enforce the debts, says Barker. 

A heavy debt burden would cause difficulty for firms struggling to repay, but it could also become a wider economic problem for the Government to tackle if it prevents firms from investing or means banks are unwilling to lend to small businesses. 

All options should be kept open if it turns out that a significant number of firms are unable to repay their government-backed loans in a year’s time, says Mike Cherry, national chairman of the Federation of Small Businesses. 

“That includes the option of treating these 100pc government-backed facilities in a manner more akin to student loans, where repayments are stretched over a longer period of time, paused in cases where borrowers cannot afford to repay, or waived entirely under a handful of specified circumstances,” he says. 

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