'Highly distressed' small firms to struggle as Covid-19 restrictions end   

A deserted St Patrick Street in Cork at the start of the Covid-19 crisis in March 2020. Picture: Eddie O'Hare

Most small firms will get through the financial stress from the Covid-19 crisis but many will continue to struggle, while a fifth of SMEs will face acute stress, according to an analysis. 

The study by the Economic and Social Research Institute and Department of Finance officials comes as business groups and politicians focus on the fallout for small firms, as most health restrictions affecting businesses were lifted this weekend. 

The report, “SME Financial Distress and the Macroeconomic Recovery”, also shows that many more small firms would likely be facing financial hardships but for the billions of euro the State provided in taxpayer supports, including the wage-subsidy, debt warehousing, and commercial rate waiver schemes, since the onset of the crisis in March 2020. 

The number of businesses going under has been unusually low in the past two years, insolvency figures show, but there are fears about failure numbers rising when the schemes are fully wound down. 

The SME debt report shows that there is "a steady recovery path for the median firm".

"However, indicators of financial difficulties remain persistently high for many firms with the share of highly distressed firms reaching 20%," according to the study. 

"In a scenario where these highly distressed firms exit the market, we find the distribution of financial indicators gradually returns to approximately the levels of pre-pandemic survey data", it said, stressing that troubled small firms may yet have other resources.  

Finance Minister Paschal Donohoe said the Government had spent €9.8bn on the two wage-support schemes during the crisis.

"As the paper highlights, without these supports the situation with SMEs, the backbone of our economy, would be much worse, not only at the present time but also into the future," Mr Donohoe said.   

"But the paper also shows that not all firms will survive, some companies will not be able to adapt to the many social and economic changes that the pandemic has brought," he said. 

Meanwhile, the number of company start-ups surged to a record of almost 25,700 last year, according to business services company  CrifVision-net, a sign of financial health for the economy as a whole.