Rescuing small businesses worldwide during COVID-19 times

Smaller business owners primarily need immediate access to funds to bridge liquidity shortfalls and stay afloat during this unprecedented situation

The COVID-19 pandemic has caused considerable social and economic turmoil around the globe. While the crisis has impacted almost every business of every sector, the small businesses are among the hardest-hit by the corona-induced economic downturn. The pandemic has severely affected businesses, especially in developing countries where more than 70% of the workforce is in self-employment or works in micro, and small enterprises, with most of them operating in food and agriculture, hospitality and tourism, hospitality, textile, and clothing, and the construction and manufacturing sector.

Financial and operational challenges, market access barriers, demand depression, and the inability to shift operation from brick-and-mortar to digital channels are among various issues affecting micro, small and medium-sized enterprises (MSMEs) or small and medium enterprises (SMEs) that represent about 90% of businesses and more than 50% of employment around the world.

Here are the key threats facing small businesses during this time of crisis:

Declining revenues and Liquidity crisis

SMEs are mostly labor-intensive and usually have limited working capital. Months of strict lockdown and other containment measures have threatened the production and financial stability of small businesses, leading to income loss and unemployment, thereby making it difficult for them to maintain their cash flow and stay afloat during the crisis.

Supply Chain disruptions

The restrictive measures enforced by the governments to curb the spread of COVID-19 prompted the global shutdown of factories and non-essential businesses, thus creating an unprecedented supply and demand shocks. Small businesses are witnessing demand depression as a result of a severe disruption of the supply chain networks locally and globally.

Skills and labor shortages 

Prior to the pandemic, small businesses were already grappling with skills and labor shortages, and the restrictions imposed to contain the ongoing pandemic has exacerbated the existing challenges. 

Rapidly evolving market landscape

While demand for several essential items including personal protective equipment, medical supplies, hand sanitizers, and surface disinfectants, exploded in the last couple of months, demand plunged for non-essential items. Businesses need to adapt to the rapidly changing market landscape to avoid loss of productivity and disruptions. However, most of the SMEs are not resilient enough to actively respond to these emerging rapid changes in the business landscape.

Supporting SMEs during COVID-19

Just as it is critical to opening businesses to exit the economic crisis, it is equally important to provide them cash-flow assistance. Smaller business owners primarily need immediate access to funds to bridge liquidity shortfalls and stay afloat during this unprecedented situation. Here are some of the measures taken by the governments of advanced and emerging economies to protect small businesses and make them more resilient to Coronavirus-related economic disruptions. 

North America

In the United States, the Small Business Administration (SBA) is offering targeted, low-interest disaster recovery loans for up to USD2 million to help small businesses alleviate economic injury caused by the Coronavirus (COVID-19). These low-interest loans are available to businesses that have sustained “substantial economic injury” due to the spread of the coronavirus. These loans have a 3.75% interest rate for small businesses and a 2.75% rate for nonprofits and may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.  In addition, the SBA's Paycheck Protection Program is making loans available to eligible small businesses to keep their workforce employed during the Coronavirus (COVID-19) crisis. Established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the USD 349 billion lending program provides 100% federally guaranteed loans to small businesses and may even forgive loans if all employees are kept on the payroll for eight weeks. As of May 23, 2020, the SBA has guaranteed 4,424,756 Paycheck Protection Program loans

In Canada, the government is supporting SMEs via the Business Credit Availability Program. As part of the program, the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) are working with private lenders to coordinate solutions for SMEs. The program includes-

• EDC Loan Guarantee provides new operating lines of credit or term loans of up to $6.25 million, with 80 percent guaranteed by EDC.
• BDC CO-lending Program offers eligible BMO business clients term loans up to $6.25 million, 80 percent of which would be provided through BDC. It offers differing maximum finance amounts based on business revenues.
• BDC Mid-Market Financing Program provides commercial loans ranging between $12.5 million and $60 million to eligible medium-sized businesses

In addition, the Canada Emergency Business Account will provide interest-free loans of up to $40,000 to qualifying small businesses until December 31, 2022.

Asia-Pacific

The Singapore government has launched a number of financial relief measures to help individuals and SMEs to ride through the Coronavirus storm. Eligible SMEs which are facing temporary cashflow constraints have the option to defer principal payments on their secured term loans up to 31 December 2020 and can also extend the tenure of their loans by up to the corresponding principal deferment period if they wish. In addition, the country has launched a new Facility to help SMEs manage their cash flow better and sustain operations amidst the current COVID-19 pandemic. Launched by the Monetary Authority of Singapore (MAS) in collaboration with the ESG (Enterprise Singapore), the Facility helps banks and finance companies lower the cost of loans to SMEs by providing them funding at the low-interest rate of 0.1% per annum.

The Australian government's Coronavirus SME Guarantee Scheme is supporting SMEs with a turnover of up to $50 million by providing eligible lenders a guarantee of 50 percent for new unsecured loans to be used for working capital. The Scheme was launched in April 2020 and be available for new loans made by participating lenders until 30 September 2020.

In India, the government has announced several measures to enable MSMEs to get back to production and workers back to gainful employment. The latest of the relief measures include collateral-free loans worth Rs 3 lakh crore for MSMEs with up to Rs 25 crore outstanding and turnover up to Rs 100 crore till October 31, 2020. It will provide total liquidity of Rs. 3.0 lakh crores to more than 45 lakh MSMEs in the country. Other credit support measures include Rs 20,000 crore Subordinate Debt for Stressed MSMEs and Rs 50,000 crore equity infusion through MSME Fund of Funds.

Europe

The UK government has announced a number of measures to support businesses through this period of disruption. It includes the Coronavirus Business Interruption Loan Scheme (CBILS) that provides financial support of up to £5 million for eligible smaller businesses from all sectors across the UK that are experiencing lost or deferred revenues, leading to disruptions to their cash flow. Launched in March 2020, the scheme is available through the British Business Bank’s 40+ accredited lenders and will initially run for six months. The Small Business Grant Fund (SBGF) supports small and rural businesses in England with their business costs during coronavirus. Small businesses in England that pay little or no business rates are entitled to a one-off cash grant of £10,000 from their local council. The Bounce Back Loan Scheme (BBLS) enables smaller businesses to access finance more quickly during the coronavirus outbreak. The scheme helps small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000. The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.

Italy, the hardest-hit European nation has set aside 30 billion euros for small and medium-sized enterprises, including sole traders or holders of VAT numbers, with access to the guarantee issued by SACE, the Italian Export Credit Agency. The Italian government has temporarily suspended account credit lines, loans for advances on securities, short-term loan maturities, and installments of loans until 30 September 2020. In addition, the SME Guarantee Fund has been increased by more than 150% bringing the guaranteed funding from the current 40 billion to over 100 billion.

Latina America and the Caribbean

Micro, small and medium enterprises (MSMEs) which represent 99% of all companies in the Latin America and the Caribbean (LAC) region and generate more than half of jobs. The region's biggest economies, Brazil and Mexico have rolled out several measures to support MSMEs in response to the COVID-19 pandemic.

The Mexican government, in late April, approved a new credit line to support one million micro-companies via the development bank Nacional Financiera. The new credit line will support SMEs up to 25 billion MXN (1 billion USD) and credits will be settled over a period of 3 years, with a 3-months grace period. In addition, Mexico's central bank (Banco de México) has opened 350 billion pesos financing facilities for commercial and development banks to allow them to channel resources to micro, small- and medium-sized enterprises and individuals affected by the COVID-19 pandemic.

In March, the Brazilian government announced USD 8 billion financial support for SMEs that account for 62% of total employment in the Latin American country. Lately, the Brazilian state bank BNDES extended its support to small businesses by expanding access to credit. Brazil's five largest banks Banco do Brasil, Caixa Econômica Federal, Banco Santander Brasil, Itaú Unibanco, and Banco Bradesco also agreed to extend the maturing debt liabilities of SMEs and individuals.

The Middle East and Africa

Micro and Small Enterprises (MSEs) account for more than 90 percent of enterprises in Egypt. In response to the COVID-19 induced economic crisis, the Central Bank of Egypt (CBE) has deferred loan repayments for small and medium-sized companies by 6 months while the Financial Regulatory Authority (FRA) has announced a number of measures to aid micro-finance activity including postponing 50 percent of payments with no penalty and reducing the administrative fees for current finances. 

In South Africa, the hardest-hit African country, the government has announced a series of intervention measures to support small, medium, and micro enterprises (SMMEs) negatively affected by the Covid-19 disaster. They include the Debt Relief Finance Scheme to keep SMMEs afloat during the crisis for a period of 6 months from April 2020 and Business Growth/ Resilience Facility to offer working capital, stock, bridging finance, order finance, and equipment finance to SMME’s who locally manufacture or supply high-demand products hygiene, medical supplies, and food items. Given that the Tourism sector which serves as a growth catalyst for the South African economy has been badly affected by COVID-19, the government has launched a Tourism Relief Fund that provides once-off capped grant assistance to SMME’s in the tourism value chain.

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