Prospects of small businesses amid broader economic recovery

Highlights

  • Micro, small and medium size businesses are aggressive and plays a vital role in economic recovery.
  • Many small businesses were hit hard during the COVID-19 pandemic due to lockdown restrictions in place.
  • The Government has introduced several initiatives to promote lending to smaller businesses.
  • The Government also announced SME Guarantee Scheme to support small businesses.

Micro, small and medium size businesses play an essential role in the economic recovery because of their aggressive nature of doing business. These businesses focus on innovation and have an opportunity-seeking nature.

During the COVID-19 pandemic, several small and medium businesses were significantly impacted due to trading restrictions. These businesses include restaurants, cafes, hotels, tourism operators, gyms, beauty salons etc.

In 2H 2020 and 1H 2021, the broader economic recovery improved many businesses' situations. As the recovery gained momentum, it was seen that many businesses started gaining business confidence. However, the situation continues to remain bumpy throughout industries, thanks to the variable demand in product and services during the pandemic.

The 2nd half of 2021 is faring no better with restrictions imposed on movement to curb the spread of the delta variant in several states. The restrictions have disrupted the economic activity, creating an uncertain economic environment.

How COVID-19 impacted small businesses?

The economic disruption due to COVID-19 and the lockdown imposed on movement impacted small businesses to varying extents. Many businesses witnessed a drop in revenue, their orders got cancelled, and consequently, staff were laid off. However, there were few businesses that experienced an increase in sales. Most of these businesses were engaged in the distribution of goods and services through the supermarket or online mode.

Small Businesses witnessed a drop in revenue

How is the Government providing support to these businesses?

Small and medium businesses are being aided by policy measures which include several initiatives that continue to promote lending to smaller businesses. The desire to take on new loans gained momentum for a few businesses.

RBA highlighted that in the June 2021 quarter, the volume of lending to SMEs improved. The rise in business lending was in line with the advancement in economic situations over the 1H 2021 & growth in business confidence. However, this surge in the stock of remaining business credit mostly precedes current lockdowns because of COVID-19 outbreaks. These limitations to curb the COVID-19 spread would negatively impact various businesses and may lessen demand for debt for some time.

Government's Scheme to Support Small businesses

In late March 2020, the Australian Government announced AU$40 billion SME Guarantee Scheme. It was increased in October 2020 and closed to new applications by June 2021. On the whole, take-up of the scheme was at a low level, with ~AU$6.5 billion of loan commitments made to ~66,000 businesses.  In April 2021, the Government launched the SME Recovery Scheme. SME Recovery Scheme is an improved & extended loan guarantee scheme for SMEs. The SME Recovery Scheme was initially accessible only to businesses that obtained JobKeeper payments in the March 2021 quarter or were impacted by the floods in New South Wales in March 2021. However, in later days of August 2021, the Government declared that this requirement would be withdrawn.

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Bottom Line:

Small businesses play a critical role in economic recovery. Hence, they need adequate support from the government and people to bring economy back on the track.

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