Economist says SMEs need 'zero interest loans' to get through Covid-19 crisis

Economist Jim Power

The 270,000 small firms in the State which between them employ 1.1 million are owed an average of €75,000 each — showing the urgency of Government measures to help liquidity for SMEs, business groups have said.

The calculations — which come from economist Jim Power and based on a survey of members of business group Isme — underscores the importance of liquidity required to keep large parts of the economy from going under completely.

“Every SME in the country is struggling and it is clear that many will become insolvent without new measures,” Mr Power said, who calculates that credit outstanding amounts for SMEs to around €21bn.

He said the Government needs to provide “zero-interest loans to SMEs” which would reflect the rock-bottom official costs of loans from the ECB. Irish banks have long charged SMEs among the highest interest rates to service their corporate loans in the eurozone, Mr Power said.

The importance of liquidity for SMEs cannot be overstated, he said, as the credit outstanding is owed by small firms to other small firms and circulates around the economy.

Business group Ibec has also called on the Government to be more “aggressive” and launch new measures to help the liquidity of vulnerable businesses at an estimated cost to the exchequer of €5.9bn.

“For many businesses, payment timelines are stretched, credit facilities provided by large firms are coming under strain, and the need for cash flow has greatly increased,” said Ibec Ibec director of policy Fergal O’Brien.

Left without intervention, this will result in a significant spike in liquidations over the coming months and have the knock-on effect of a far slower return to normal operations, investment and expansion for firms who stay open through the crisis.