Small businesses need a state grant scheme to ensure survival

For companies forced to close because of Covid-19, many fixed costs still need to be paid and taking out a loan is not a solution to the problem

21st April, 2020
Small businesses need a state grant scheme to ensure survival
Viking Splash Tours is just one of many small or medium businesses that have been forced to closed for now due to Covid-19.

It is no secret that small and medium enterprises (SMEs) employ a large proportion of the working population in Ireland. Having managed their way through the financial crash and the subsequent dearth of bank lending, these businesses are now faced with an even bigger challenge which is not of their own making.

The business environment created by the need to tackle the Covid-19 outbreak is unprecedented and inescapable. Senior government figures have said they will support SMEs through this crisis period and we must hold them to that promise.

My own business, Viking Splash Tours, has been running for 20 years. When the Covid-19 outbreak reached Ireland, tourism collapsed and we had to shut on March 13 due to a substantial fall in passenger numbers. This has obviously had a significant impact on cash flow.

As an attractions-based company, our trading season is effectively the eight months from March to November. During the winter months we plan for and sign up to various financial outgoings, which we identify as fixed and contracted overheads and that we then spread out over our calendar year.

These costs cover items such as rent, rates, insurance, lease payments on equipment and vehicles, fee payment plans, digital marketing, servicing and financial borrowings and so on. The facts is that, regardless of whether we stay open or closed, these fixed outgoings continue running, usually at a monthly run rate of 30 to 40 per cent of total annual costs.

Some of the larger costs may even be shaped to match the bell curve of our expected sales income, which is weighted to the months of June, July, August and September. Closing down in March coincides with the month of our lowest cash reserves due to the seasonal nature of the tourism business.

We cannot hope to cover our costs without access to liquidity outside of our budgeted cash flow, particularly as there are no sales to meet them. Realistically, it could be next year before we are fully open again and operating as normal, given the impact of the Covid-19 pandemic on tourism.

At present, the financial assistance being offered to businesses like ours is in the form of loans. These are expected to be managed by the pillar banks who will apply bank lending criteria and charge interest.

Getting financial help through agencies, such as Enterprise Ireland, Fáilte Ireland or the Strategic Banking Corporation of Ireland, involves the same process as a loan application. We need to supply cash-flow projections, opening forecasts, audited accounts and recent management accounts.

Forecasting is a key ingredient for any business loan application, but right now it is entirely guesswork for us as we are in uncharted waters. Our business is already leveraged, and our concern is that since we are closed we cannot trade, yet still have a series of costs we must meet.

This is a problem many other businesses are facing. The issue needs to be debated amongst SME representatives and the relevant government departments to find a solution.

One option would be to create a national grant system where SMEs get a capital amount to use against fixed overheads. These could be self-certified by the company based on historical trading data and be subject to revenue audit.

It could be made available to businesses that experience a large decline in profits in the order of 30 to 40 per cent as a result of the response to the Covid-19 outbreak. Contracted fixed costs could be covered up to 75 to 80 per cent for the length of the scheme, and it could be applied differently to various sectors.

The money to pay for this could be generated by the state through borrowing, and Irish banks could be used solely to distribute it. This is a similar model to that used for the EU‘s temporary framework for state aid, through which Ireland has been given access to €200 million to support the economy.

In these unprecedented times, it is important to have public support for any emergency measures. The government wants businesses to survive to ensure that the economy can rebound once the restrictions are lifted. It needs to communicate the reasoning for this and take the action necessary to achieve it. The correct response can be worked out with stakeholders.

The alternative vista is that companies such as ours will not get to the starting line, and that failure is likely to tear the heart out of a small and open but very successful economy.

Tourism helped create the recovery from the last economic crash and, with the right help, it can do so again.

Des Rogers is managing director of Viking Splash Tours

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