Liquidity, liquidity, liquidity: It’s what matters to SMEs exiting pandemic

Small Firms Association (SFA) director Sven Spollen-Behrens sums up the challenges facing small and medium sized businesses as they emerge from the lockdown in three words: “Liquidity, liquidity, liquidity.”

"These are the key elements required for small businesses to restart and reboot," he says. "A large number of businesses will run out of cash very soon. Cash flow and liquidity are the biggest issues facing them. The Government measures, while well-meaning, are not doing the trick. They are not working."

He points to research carried out over the past few weeks among SFA members which highlighted the scale of problems faced by small and medium sized businesses. The survey of 292 businesses with 50 employees or fewer found that 83 per cent of them anticipated a decrease in turnover as a result of the Covid-19 pandemic; 82 per cent said profitability would fall; 65 per cent foresaw a reduction in the size of order books; while 32 per cent said it would take longer to get paid by customers.

Even more telling was the finding that more than half of the respondents (51 per cent) would not be able to stay open for longer than three months on current cash reserves if they did not start generating revenue.

Spollen-Behrens believes the financial supports do not go far enough for many of these businesses. “The restart cash grants are worth between €2,000 and €10,000 depending on last year’s wage bill,” he explains. “That will be gobbled up very quickly by the health and safety measures required by Government. And if you look at the take-up of the working capital scheme, there is clearly a problem there. There have been 2,800 eligible applications to the SBCI Covid-19 Working Capital scheme and less than 10 per cent of them have been approved.

“The Government is over-engineering a lot of its support measures,” he says. “The credit guarantee scheme, for example, has a cap of 50 per cent of the bank’s loan book. This greatly reduces the effectiveness of the scheme. Taking the cap off the scheme would be a good place to start.”

The lengthy government formation process is another problem, he contends. "Microfinance Ireland is doing a very good job and is approving a lot of new loans. But because there is no new government, the legislation to increase the loan limit from €25,000 to €50,000 can't be passed. A lot of things look great on paper and there is a long list of supports and measures, but there is no take-up either due to too much fine print or because there is no new government in place."

What we are really looking for is help with the liquidity piece

These issues should be dealt with by a taskforce on small and medium sized businesses, according to Spollen-Behrens. “This taskforce should bring together Government departments and agencies and small business representative organisations to work on rebooting the sector. We had the OECD here for two years researching the environment for SMEs and they published their recommendations in October. But between the election and Covid-19, that report has been shelved. The taskforce could take up those recommendations.”

It still comes down to hard cash in the immediate term. “What we are really looking for is help with the liquidity piece,” he says. “Without that you can forget about a lot of businesses reopening. The three-month waiver of commercial rates has been very welcome but that needs to be extended to the end of the year. Along with staff costs, commercial rates can be one of a business’s biggest outgoings. It’s also been great to have a holiday on tax payments but, to be really honest, there has to be some sort of write-off and debt-forgiveness programme in these areas. Without that, a lot of businesses won’t reopen.”

VAT is another priority. “This has to be reduced to 9 per cent for hospitality and other service areas like hairdressing. They will all have to spend a lot more on PPE and other health and safety measures when they reopen.”

The cost of finance must also be addressed, he says. "Irish interest rates are much too high even with the State subsidy. They should be 2 or 3 per cent at maximum or even zero per cent with the State subsidy. Also, the minimum wage shouldn't be touched until 2023. It has increased by 17 per cent in the past six years and is the second highest in Europe. We need to hold it as it is until we are out of this crisis."

Psychology and sentiment are also important. “The Government needs to give the small business community a sense that it is looking out for it and offer hope for the future. Otherwise, there could be a perfect storm which will create a crisis in consumer confidence making matters even worse.”