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THE ECONOMIC FALLOUT for businesses hit hardest by the Covid-19 pandemic could see significant numbers of small and medium-size enterprises (SMEs) fail this year unless there is a “dramatic intervention”, employers group Ibec has warned.
It said this morning that there are three urgent policy areas the next government must act on to support SMEs, including a restart grant which would feature a flat payment of €15,000 per company.
Ibec’s chief economist Gerard Brady said that its research indicated that for seven in 10 companies, their cash reserves wont last until demand returns to its “normal” level.
“This ‘liquidity gap’ will need to be bridged by external funding in order for many of these companies to survive,” he said.
Many businesses across the country shut their doors from mid-March onwards, and employers groups such as Ibec have for some time called for greater supports to allow businesses get back on their feet once they were permitted to return to work.
At different stages, the government has outlined measures such as the extension of the wage subsidy scheme into August and a range of supports aimed at providing liquidity.
However, business groups have warned that more is needed to meet the scale of the crisis and this new document from Ibec on “Sustaining SMEs” calls for a number of actions the next government should immediately take.
If the membership of Fine Gael, Fianna Fáil and the Green Party agree to go into coalition, we’ll have a new government led by Micheál Martin as Taoiseach next week.
In their draft programme for government, the parties commit to a July Stimulus – an immediate suite of measures aimed at supporting businesses through the crisis.
Ibec’s Brady said: “The July Stimulus provides an opportunity to deliver emergency supports to the SME sector that can provide critical bridging finance while SMEs try to trade their way through and adapt to the new normal.
Not every SME will survive but it is imperative that we preserve as much of the SME ecosystem as possible to keep as many people in employment as we can.
Under a heading of three policy area recommendations, Ibec said such supports will be “unprecedented, but we are living in unprecedented times”.
The first is the restart grant, which recommends the government increase this fund to in excess of €1 billion. The government previously announced restart grants of €10,000 but Ibec said that should be increased to €15,000 and its link to the rates system which it said disqualifies many smaller operators should be removed.
It also calls for a “bounce-back” credit guarantee on loans with 100% guarantees, no portfolio limit and an interest rate holiday of 12 months to be followed by rates below the Eurozone average.
A further set of measures related to business fixed costs and debts such as a fund to write down debts under the Revenue Commissioners tax warehousing scheme when they threaten business viability.
Ibec added that its research indicates the number of SMEs worst impacted by Covid-19-related shutdown are in excess of 100,000 who between them employ around half a million people around Ireland.
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So who pays for all of this?
A €15K cash payment upfront in July at a cost of €1 Billion whether the business has a future or not?
Rates don’t have to be paid and Revenue ‘warehouses’ tax liability but taxpayers’ money also 100% guarantees no-limit loans with 12 month interest rate holidays.
What’s to stop someone banking the payment and then folding an unsustainable business in August or September?
Use the €1Billion+ to support the customer – Stimulate demand for essential/viable businesses, protect jobs and raise VAT returns.
@Donal McGrath: I agree. Groups like Ibec need to think before they go running with cap in hand. In the last few weeks, all I have seen is for people and organisations asking government to pay out hundreds of millions of euros in support etc. Your question is accurate i.e. where do they all think they money will come from? Who pays it back?
@Donal McGrath: raising VAT wouldn’t help businesses, if anything it would speed up their closure.
@Donal McGrath: But you have to agree that this was a crisis not of any Businesses making. The State ordered the closure of businesses, crippling many. Is it not only right that a forced closure order is compensated in some way?
@Johnathon Fehily: Pandemics dont do compo, they didnt close them for the craic it was to save lives..
How about the government instead of bailouts does something that will actually help like fix the broken rates system?
@Donal McGrath I am a small business owner and employ 4 people and I don’t think you understand what ibec mean how are some meant to restock there business to sell goods and services to their customers when all the restrictions end. My company offers installation services to larger company’s if I get more work in where am I meant to find the cash to fund it. I am not eligible for the rate offset loan and neither are al lot of small business like plumbers electricians etc
I agree a blanket €15k is not a good idea due to points raised, but more needs to be done for sme’s
@Darren Malone: Can you request a deposit from your customers to cover initial costs Darren?
@David Corrigan: exactly, money up front also stops the client changing their mind
@Ian James Burgess: Even stage payments. If companies have long term working relationships with other companies, then there will be an element of trust there.
@David Corrigan: Dont think you know this works. You try and ask any of these companies for money up front and they laugh at you.
He would be lucky to get paid 60 days after the job has been completed.
(Yes legally they are not allowed but in the real world……)
Hell even as a large company would you hire somebody ( and pay up front ) considering the current landscape where companies are going to fail left right and center.
As usual, bigger companies and banks will get bailed out.
@David Corrigan: as another poster stated bigger companies will often laugh if you ask for payment upfront even a deposit. In business a PO is your contract but yes payment can often take up to and sometimes over 60 days. My limit is 30 days.
I am not looking for free money just a loan to help me restart my business dealing with bank is impossible these days if you are sme you nearly have to give a lung to get an overdraft.
Ibec have a point, business cannot run without capital and a large volume of SME’s going to the wall would be very damaging to the economy.
However the idea proposed is incredibly naive and money is not free. Money given out has to be repaid somehow, if the money cannot be repaid by business, then it falls to the taxpayer.
Government can currently borrow money interest free. What about a NAMA like vehicle, that is given money by the government and can lend to small businesses on the basis of sufficient assets being secured against the debt? Those that cannot guarantee do not receive funding. Yes it’s harsh for those that lack assets but last thing that should happen is the taxpayer foots another bill because more money is thrown out the window without caution.
@Wreck Tangle: Just what small companies needs. More red tape and delays in.
Money is FREE at the moment. Its just the usual.
“Lets involved the banks cause they know what they are doing and let them charge interest for money they got for free”.
Really don’t think people understand just how many jobs are on the line here and how close a ton of companies are to falling off the cliff.
We need action and we need action right NOW
Over a million people are being paid between PUP, wage subsidy (also pandemic) and unemployment benefits. Something needs to be done to get people back.
@John Egan:
We could always be like Brazil and US, pretend it’s not happening and tell everyone to move along. It’s working out great there!
@Wreck Tangle: yes, it’s easy to argue when you pick out the worst handled countries……. And I don’t think it’s much good comparing a country of 5 million people to 400 million.
@John Egan:
Well the countries that ignored Corona turned out to be the worst cases but we can use say Sweden as a better example… Are things going well there?
@Wreck Tangle: when did I say say just ignoring Covid? As for Sweden, time will tell percentage wise they’re not worse than Spain, Italy, France. But why not compare to Finland, Norway, Austria..if it’s comparisons we want.
@John Egan:
Finland, Norway the neighbours of Sweden who had full lockdowns and performed much better and could come out of lockdown earlier?
Austria who ignored the EU, locked their borders without permission while Germany, Switzerland, Italy stood watching and their other neighbour Hungary decided to also pretend that there is no such thing as Corona?
have your say