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CBILS and BBLS: solving the COVID-19 debt burden

15 June 2020: how will businesses repay their debts once the coronavirus passes? ICAEW wants your feedback.

Businesses of all sizes, regions and sectors are facing the stress of COVID-19. The broader economic effects of the crisis are having a significant impact across the board. For many, the practicalities of getting out of a state of forced suspended animation are also taking their toll.

The UK government responded quickly with far-reaching stimulus measures including business funding packages, tax relief, support for UK workers and the self-employed. Significant numbers of businesses are using these schemes to provide liquidity and protect jobs.

However, economic forecasts suggest that, over the next year to 18 months, trading conditions will be tougher than pre-COVID-19. This may present challenges for businesses in servicing pre-existing debt. On top of that, many have taken on additional debt to weather the crisis or restart their business. The City UK predicts that the demands of this debt will likely compromise the growth and viability of many UK businesses and, as a result, the UK economy.

For SMEs who have taken out debt under the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) the Recapitalisation Group is looking at how these loans might be restructured before businesses begin to struggle or default on their payments. They have suggested two potential options – a form of preferred shares and a contingent tax liability. The latter would be repayable by way of a surcharge on taxable profits ie, over and above normal corporate tax and NIC. They recognise that these options probably wouldn't work for microbusinesses, where additional forbearance or conversion to grant could well be more appropriate, but the instruments may be relevant to some. If you would like to find out more about these, the City UK’s report contains background and draft indicative term sheets.

To make sure the options make sense for businesses; The City UK is seeking feedback via a survey which asks about the challenges your business or businesses you advise see coming. 

The survey is open until 19 June 2020 and can be accessed here. Alternatively, if you would like to share views concerning the report or the options presented, please email fsf@icaew.com; we will include your comments in our wider response.