Direct Liquidity Is Needed To Keep SMEs On Life Support

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  • Irish SMEs have yet to see real solutions emerge for the provision of working capital. 
  • ISME’s data suggest that the average SME owes €78,000 to other businesses.
  • 64% of ISME members believe they will continue operating as viable concerns for up to six months, with 6% of business saying they will not survive.
  • ISME believes Ireland needs a revised ‘second-chance’ mechanism for SME liquidation. 

While the measures to support employee earnings have been welcomed by SME owners, we have yet to see substantial solutions emerge for the provision of working capital. ISME has written to both An Taoiseach and Minister Pascal Donohoe regarding this growing concern.

The latest ISME data estimates that the average SME owes €78,000 to other businesses. This suggests an inter-company debt of just under €11bn throughout the economy.  This debt is owed to thousands of small businesses for food, drink, stationery, cleaning, accountancy, distribution, materials and much more. If it is not repaid, the viability of the businesses to whom the debt is owed will be fundamentally undermined. The domestic SME sector isn’t highly profitable, which means many businesses will burn their remaining cash reserves quickly.

ISME asked their members how long they believe they can continue operating under these conditions. Almost 6% believe their business will not survive, and a further 64% believe they will continue as viable concerns only for up to six months. With almost 70% of the active workforce in Ireland employed by SMEs, the long-term consequences of a collapse in SME employment are simply too horrible to contemplate.

ISME understands that the liquidity issue is the cause of much disagreement in the EU. However, it is incumbent on those who object to direct liquidity supports to suggest a viable alternative that keeps businesses going.  The greater threat to the viability of the single currency would be its failure to rise to a second big challenge in a decade.

ISME believes that direct liquidity is now required to keep SMEs on commercial life-support. Any debt that is offered as a part of the solution must be offered on a forgivable basis, as the United States is now doing, and at zero or negative rates.

Finally, we recognise that no matter what is done now, some businesses are already beyond rescue.

Ireland therefore needs a revised ‘second-chance’ mechanism for SME liquidations, which would provide for a simple, administrative insolvency regime, conducted outside the courts. This would avoid unnecessary company bankruptcies, as well as the tsunami of personal insolvencies that would follow.

ISME CEO, Neil McDonnell said today (8th April) ‘The longer it takes to support Irish SMEs, the slower and more expensive our recovery from Covid-19 will be. We need action now.’

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