August 8, 2022

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The majority of small and medium-sized enterprises (SMEs) will emerge from Covid as viable businesses...

The majority of small and medium-sized enterprises (SMEs) will emerge from Covid as viable businesses even after Government supports are withdrawn, according to an upbeat assessment from researchers at the Central Bank.
The technical research paper on “SME Viability in the Covid-19 Recovery” says 30pc of Irish SMEs would have been cast into financial distress – assessed as inability to pay bills or service debts – without the suite of Government-funded Covid supports put in place last year and continued through 2021, such as wage supports and tax warehousing. 
The scale of that support has prompted fears that any move to withdraw funds could topple firms into distress or even liquidation. The Sunday Independent reported the Cabinet was warned earlier this month in a confidential memo that tens of thousands of jobs could be lost and thousands of businesses could go to the wall when the Employment Wage Subsidy Scheme (EWSS) ends next April, with particular fears for the hospitality sector.
That memo outlined that 300,000 jobs in almost 25,000 businesses are dependent on state subsidies.
However, in their latest assessment the Central Bank researchers say most firms are expected to roll off government support programmes naturally because the pace of turnover recovery will lift them out of financial dependency. 
“The impact of government support tapering alone is expected to be modest due to the strength of the underlying recovery,” the report said.
However, there will be a class of businesses including in hospitality hit by changes that happened during the pandemic or were accelerated by it but set to more long term.
For these, firms that never recover beyond 75pc of pre-Covid trading may keep trading but at the risk of sinking into over-indebtedness and financial distress, the report says.
That cohort is not predicted to be big, however, with only relatively mild implications for the overall level of financial distress in the economy.
An additional around 5pc of business were in distress before the pandemic, and likely to be again afterwards. 
The overall picture is good news, if proven correct, for jobs as well as for lenders, landlords and suppliers across the economy.
It also suggests policymakers have been justified in maintaining supports amid claims in some quarters that the effect has been to hold up unviable ‘zombie’ businesses at taxpayers’ expense. 
Separate research published by the Central Bank on “Forbearance” found business borrowers were the main beneficiaries of lender support this year. Banks granted forbearance on €4.7bn of loans in 2021: 79pc owed by businesses that were mostly in the property; accommodation and food service and arts and leisure sectors.

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