A report published by the Federation of Small Businesses (FSB) and Ownership at Work, has urged the government to allow struggling companies to convert state-backed loans into employee ownership trusts.

More than 1.5 million bounce back facilities, with a collective value of over £46bn, have been approved since the start of the pandemic. And there are growing fears that many small companies will struggle to repay these loans, with the Office for Budget Responsibility warning that 40% of bounce back borrowers could default.

The report’s authors therefore propose that struggling small firms be given a time-limited amnesty under which Bounce Back Loans could be written off in exchange for all-employee equity stakes vested in employee ownership trusts. In such instances, lenders who provided the loan facilities would be eligible for their 100% government guarantees.

It is argued that replacing unaffordable debt with an employee ownership stake would protect viable smaller firms but in a way that benefits everyone involved. In conclusion, the A Shares for Debt Recovery Plan report states that the move would ‘protect livelihoods, spur productivity and pave the way for a small business-led recovery as we seek to emerge from the deepest recession in modern history.’