It is always darker before dawn, and there is no doubt that the Covid lockdown has pushed many Irish SMEs into a dark place, facing terrible financial pressure. Seventy percent faced a drop in their income, according to the CSO, with a median drop of 25 percent – enough to push many companies with low profit margins into a loss.
With SMEs employing over a million people in Ireland, the impact on jobs, wages and the mental health of SME owners and their hardworking teams has been immense.
Fortunately, there are positive signs that the dawn is coming and that confidence and sales are returning. Linked Finance’s recently released SME Confidence Index showed confidence in the second quarter of the year up from 12 months ago.
Perhaps more importantly, the outlook for the future is also strong, with 76 percent of SMEs expecting business activity in the next quarter to be the same or better than it is now.
These trends are consistent with a series of other barometers. A Small Firms Association survey of members released in June showed improving sentiment and forecasts for economic growth this year are being revised upwards across the board, most recently by Davy who earlier this month upped their take on GDP growth for 2021 to 15%.
If you look more closely, this recovery is not felt evenly across the economy. The fastest growing multinational sector. The recovery of the national economy is much more gradual, Davy stressing that output by native Irish companies is still 6.4% below pre-pandemic levels.
Our research supports this point, with confidence and performance levels for SMEs that have exposure to export markets ahead of those that depend solely on the national economy.
It is also noteworthy that the recovery is slow for microenterprises – businesses employing between one and three people (perhaps a hairdresser or a small cafe) – where the impact of Covid has hit the hardest and a return to normalcy has been. slower to come.
There is sometimes a risk that as we celebrate the welcome contribution of the foreign direct investment industry and the massive importance of Googles / Facebooks / Amazons, we forget to pay enough attention to the contribution of SMEs. More than two-thirds of Irish people working in the private sector are employed by an SME, with these companies making a contribution in each of our 26 counties and in all sectors of the economy.
Quick and efficient access to credit is vital for SMEs, looking to restock and reopen as the pandemic restrictions end. It is certainly a worrying sign that, according to the Central Bank of Ireland, gross lending to SMEs at the start of this year by the mainstream banking sector fell by 24% in 2020.
To avoid the risk of depriving SMEs of affordable financing, the government very wisely introduced the Covid-19 credit guarantee scheme for which we were the first approved non-bank lender.
Today more than ever, companies must ensure that they maintain their competitiveness
As we progressed through the year, the pace and demand for our clients’ credit increased, with July marking a record high and the level of credit well before the dark days of 2020, especially in sectors such as retail trade (+39 percent), construction (+62 percent), transport and logistics (+67 percent).
The income support made available through the Wage Subsidy Scheme for Employment (EWSS) and the Pandemic Unemployment Benefit Scheme (PUP) is even more important for SMEs than the Social Security Guarantee scheme. credit. The government is rightly subject to a challenge and rigorous debate over how it has handled Covid, but it was interesting that more than two-thirds of SMEs in our recent survey said they were either ‘satisfied Or “very satisfied” with the Government Support provided, and only 12 percent indicating dissatisfaction.
Perhaps not surprisingly, that 12 percent received a much larger share of on-air voice, but overall the government answered the call when the tough questions were asked.
We now hear of a ‘mini boom’ emerging after Covid, and the government faces the heinous challenge of deciding how quickly it will lift emergency measures. Go too fast and they risk stifling emerging business confidence; go too slowly and the massive bill we will have to pay off as a nation will become an undue burden.
We have noticed that SMEs are talking about an increase in price inflation as they resume operations, with 23% of companies expecting to charge higher prices in the future, compared to 6% one year ago. It’s another mini-boom signal some are talking about, and is reflected in recent CSO inflation figures showing prices in August rose at the highest rate in 10 years.
Today more than ever, companies must ensure that they maintain their competitiveness. Businesses that risk trying to make up for lost sales with short-term price hikes could easily find consumer patience running out of steam.
Overall, there is cause for celebration and the rebound we are seeing is a sign of an SME sector whose resilience is to be welcomed. Hopefully, when government support stabilizers are fully withdrawn and the initial wave of post-pandemic consumer spending normalizes, a more sustainable and long-term recovery will be sustained.
Niall O’Grady is Managing Director of Linked Finance