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Businesses need an equity solution to the economic fallout from the crisis

We’re all aware of the devastating impact the coronavirus pandemic has had on both British lives and businesses. But the ever-rising amount of debt that companies are incurring presents an even bigger problem. The numbers needed to meet the recapitalisation of debt on this scale are vast. While loans have been an invaluable emergency lifeline for many businesses, for long-term recovery we need an equity, not a debt-based, solution.

The challenge for us all is to find a way that helps businesses to grow and paves the way for a secure route out of recession. Equity funding will enable a sustainable recovery, avoiding the risk of ‘zombie companies’ that end up existing to pay debt and  stay solvent but no more, with too much debt to be able to grow. BGF is calling for an equity solution that crowds in investors to provide the nationwide reach, operational experience and established relationships needed to deliver this – and, most importantly, the capital.

We believe that £15bn should come primarily from a broad range of external investors, and potentially government matched funding if needed. Equity investing is not a political process, but Government’s ability to convene and support has the potential to accelerate the solution – as it did when BGF was created in the aftermath of the global financial crisis.

This economic recovery will require active participation from a broad range of stakeholders, working together. There are many interested parties that want to ensure that businesses get what they need to avoid a devastating and wholesale wave of company closures. This is not the same as bailing out – it means putting in place a long-term structural framework for funding growth, which in some cases will be tied in with debt restructuring. This is a two to three year project, but it also requires concerted and immediate action so we are well prepared.

The immediacy requires the UK to look at our existing capabilities rather than creating something from scratch – what assets, platforms and capital is already at our disposal to build on? The stakes are incredibly high and the UK economy remains at risk as we face the economic fallout and mountain of rising debt incurred during this crisis. To avoid lasting damage to the economy, to confidence, and a decline in global competitiveness, we need to harness the entrepreneurial power and innovation that is at the heart of the growth economy, to drive forward the industries of tomorrow whether that be the environment or life sciences, while ensuring those companies with sound prospects which have been thrown off course by this pandemic are given the time to really bounce back, to thrive rather than just survive. The future can be bright if we invest in it.

Stephen Welton
BGF Insights 06.12.2020