Financial Schemes Available for SMEs During COVID 19

small business

COVID 19 has hurled unprecedented challenges at the entire world. All aspects of living, including physical health, emotional wellbeing, economy, and financial stability, have been primarily affected by the pandemic. An unparalleled number of businesses have been disrupted, with many struggling to stay afloat. The financial schemes of the government are trying their best to keep the small and medium businesses running through financial aids, grants, and other loans.

Challenges SMEs are Facing due to COVID 19

Most of the small and medium-sized enterprises (SMEs) run in the informal economy by individuals and are devoid of social protection. They have lower resilience and higher vulnerability to losses due to their small size. Therefore, the SMEs are the first ones to suffer the devastating effects of the economic downturn caused by the coronavirus pandemic. According to research, almost 82% of the SME owners are highly concerned about the impact of COVID 19 on their businesses, while 69% are experiencing severe cash flow problems.

The pandemic has impacted SMEs both on the demand and supply sides. The businesses have suffered a drastic reduction in orders, demand, and revenue, causing severe liquidity shortages. The companies are struggling to manage their cash flows because of the loss of business, and yet bear the fixed recurring costs, including rent, insurance, product manufacturing, and shipping costs. Additionally, the small and medium enterprises are facing a supply crunch as the pandemic has disrupted supply chains and distribution movements across the globe.

The negative impact of COVID 19 on SMEs is compounded by the absence of employees owing to sickness, furlough, and layoffs. The businesses are unable to sustain their employees and pay their wages, adding further to the troubles. The remaining employees need to work longer hours to compensate for the ones laid off or absent, aggravating the pressures.

Ways SMEs Have Offset the Impact of COVID 19

Many small and medium-sized enterprises are taking the necessary steps to thwart the economic damage caused to them by the pandemic. The businesses are optimizing resources by employees working from home and decreasing the opening hours of their offices.

More stringent actions have also been taken in the form of laying off employees, furloughing them for the time being, or asking the employees to take a pay cut. The SMEs are also bringing long-term changes to their business models by shifting most of their business online and reducing the fixed costs. A few direly impacted SMEs have also decided to close doors permanently. In April 2020, about 37% of the SMEs expected to furlough 75%-100% of their staff, a similar percentage of companies ended up making redundancies in May 2020. 

Schemes Available for SMEs

The UK government has taken valuable steps and actions to support the SMEs during COVID 19. Several schemes, grants, and loans have been announced to keep the small and medium-sized businesses afloat and survive the pandemic. 

    • Coronavirus Job Retention Scheme: CJRS is one of the largest financial schemes of the UK government to support businesses and their employees. The scheme allows employers to claim for 80% of the monthly wages of their furloughed employees, up to £2,500 per month. Additionally, the government will also make contributions to the employees’ National Insurance and pension schemes. The CJRS focuses on preventing the surge in unemployment and taking the financial burden off the SMEs and their owners. A government-issued calculator has been created to help employers work out their claims on employee wages and contributions, starting from July 1 to July 31, 2020. With the wages and pension contribution, employees can re-evaluate their current and future financial position for retirement using a pension calculator.

    • Coronavirus Business Interruption Loan Scheme: The CBIL scheme has led to an increase in the amount SMEs can borrow from £1.2 million to £5 million. The finance can be accessed by the businesses interest-free for the first six months as the government will make interest payments on such loans for the first six months. The scheme also provides an 80% guarantee, without any guarantee fee for SMEs. 

    • Deferment of VAT and Self-Assessment Payments: The HM Revenue and Customs (HMRC) department has deferred all VAT payments till the second quarter of 2020. All UK VAT payers can access the deferred VAT scheme; however, the MOSS VAT on supplies of digital services is excluded from the three-month VAT holiday. The HMRC has allowed businesses to delay their VAT payments until March 31, 2021, and the self-assessment payments until January 31, 2021. 

    • Emergency Stimulus Package: The UK government announced a £30 billion emergency stimulus package in March 2020. About 23% of the stimulus package aims at supporting small businesses and allows for the scrapping of business rates for small companies for the whole of 2020. The package also includes provision for businesses with less than 250 workers to get government refunds on sick leaves that they give to their employees for the first two weeks. On the other hand, the businesses with more than 250 employees are covered under the Coronavirus Statutory Sick Pay Rebate Scheme that covers up to two weeks of sick pay leave given to sick or self-isolating employees. 

    • Bounce-Back Loans Scheme: The UK government also launched a bounce-back loans schemes for SMEs in May 2020. The scheme allows the SMEs to take 100% government-backed loans of an amount ranging between £2,000 and £50,000 at 2.5% interest. The government will pay the fees and interest on such loans for the first 12 months, and the repayment of the loan will start only after twelve months. 

Impact of the Schemes on SMEs

 The SMEs are making best efforts to stay put during the COVID pandemic. They are increasing their use of technology and software to take their businesses online, allowing employees to work from home and carry out their duties to prevent redundancies and loss of income. The UK government schemes act as financial support for the SMEs to offset the impact of COVID 19 on their businesses. Furthermore, the schemes help prepare the enterprises to weather the long-term economic implications of the coronavirus pandemic.

Kathryn Hall