By Sinead Cruise and Iain Withers
LONDON (Reuters) - More than 200 of Britain's top financial experts have joined forces to design initiatives to help small businesses restructure and repay as much as 35 billion pounds ($44.1 billion) in "unsustainable" COVID-19 relief debt.
TheCityUK Recapitalisation Group on Thursday proposed the launch of a UK Recovery Corporation (UKRC) to oversee a massive pile of government-guaranteed loans issued since lockdown, offering more manageable terms to borrowers and preventing a wave of bankruptcies borne by the taxpayer.
"COVID-19 is a 100-year storm which has caused untold economic damage. The government's support schemes have been the essential sandbags holding back the flood, protecting businesses and saving jobs," said Adrian Montague, chairman of TheCityUK Leadership Council.
"However, with tough trading conditions forecast to remain, paying back these loans will be challenging for many small and medium-sized businesses (SMEs)."
Businesses currently need to start repaying government COVID-19 loans in March.
But analysis by financial services firm EY - which led the work for the Recapitalisation Group - suggests some firms could run into trouble as early as autumn, when the government furlough scheme tapers off and rent deferrals end, putting up to 3 million jobs at risk and 780,000 SMEs in danger of insolvency.
The report urged immediate action by government including legislating to enable UKRC to act effectively.
A spokeswoman for the Treasury said the report was a useful contribution and the department would continue to engage with the sector on supporting businesses.
Under the proposals, the government would be the principal investor in UKRC initially but debt could later be sold off in portfolios or securitised and bought by private investors.
Companies supported by the UKRC could either access a 'Business Repayment Plan' to convert state-backed loans under 250,000 pounds into means-tested tax liabilities.
Firms with larger debts of up to 1 million pounds would be able to access the 'Business Recovery Capital' initiative to convert crisis loans into preference shares or long-term subordinated debt, repayable over a longer period of 8-10 years.
Both products would ensure SMEs do not give up any equity.
The final option is the creation of a new growth capital fund, Growth Shares for Business (GSB), which would provide capital to rebuild cash reserves or spur recovery.
Miles Celic, chief executive of TheCityUK, told reporters banks were mindful of the potential reputational risks involved in pursuing bad debts from struggling firms but said a proposed independent review system should help ensure fair outcomes.
Several lenders including state-backed Royal Bank of Scotland (L:RBS) were criticised by politicians for mistreating struggling small businesses after the 2007-09 financial crisis.
EY's UK Financial Services Managing Partner Omar Ali said the recovery corporation could help collect debts over the longer term, adding it was ultimately up to the government to decide the viability criteria for the various schemes.