Coronavirus (COVID-19): SME policy responses

Surveys on teleworking, digitalisation and new business practice

Some surveys also provide data on the uptake of teleworking and digital sales channels by respondents. A 4 May survey by the Canadian Federation of Independent Business (CIBC) finds that of the 26% of business owners who do have online operations, 30% have seen an increase in sales and 25% say they have remained the same compared to pre-COVID-19 levels.19 A survey by the US Chamber of Commerce that came out on 5 May showed an acceleration in digitalisation trends. Over April-May the share of small businesses transitioning some or all of their employees to teleworking increased from 12% to 20%, and small businesses that had begun moving the retail aspect of their business to digital means increased from 10% to 17%.20 A recent survey in Japan indicated that there is a gap in the prevalence of teleworking by the size of the companies (48 percent for large corporations versus 10-20 percent by the SMEs). The reasons cited include a lack of infrastructure and worker skills to use digital tools.21 A further survey in Japan supports these conclusions that the larger firm the higher the prevalence of teleworking; in SMEs of 5-29 employees, teleworking in June stood at 8% of firms (Okubo, 2020[13]). A survey in Germany from early May, shows that whereas at the outset of the crisis 88% of German SMEs operated with mandatory in-person work, 81% expect that the pandemic will make their companies more flexible and one third of SMEs esteems digitalisation has grown in importance due to the pandemic (McKinsey, 2020[14]). A survey on Europe suggested that only 56 percent of all companies with 50 or fewer employees provided remote access to email, applications, and documents for their employees, compared with 93 percent of all companies with more than 250 employees (McKinsey, 2020[15]). According to a survey among 86 000 small businesses in the United States by (Facebook & Small Business Roundtable, 2020[16]), 51% of businesses increased online interactions with their clients to adapt to the crisis. Also, 36% of self-employed personal businesses that use online tools report that they are conducting all their sales online, and 35% of businesses that have changed operations have expanded the use of digital payments. A survey in Hungary released on 23 June, indicates that where 24% of SMEs intend to return to their pre-COVID business method, 41% would rather continue with the business model developed during the pandemic.22

According to a June survey of Canadian small businesses23, 44% of these are facing a variety of technology and tech support challenges, such as in the areas of digital marketing (19%), ecommerce (13%) and their other online offerings, including their website(17%). 32% of small businesses reported needing assistance with safety measures, including workplace and customer safety, followed by finances (28%), marketing support (19%), refocusing their business (18%), community/networking (14%) and workspace equipment such as furniture or products (11%).

Late May, a survey by Verizon in the United States indicated that small business owners were seeking additional advice and assets to help them recover from the pandemic. In terms of the expertise needed for recovery, small businesses cited financial (54%), e-commerce (42%) and HR (40%) as the key areas that they would like help with.24

SMEs and most affected sectors

There is an above average representation of SMEs in sectors particularly affected by the crisis, which, according to OECD analysis, include: transport manufacturing, construction, wholesale and retail trade25, air transport, accommodation and food services, real estate, professional services, and other personal services (e.g. hairdressing). Recent OECD data show that whereas in the business economy at large, SMEs account for over 50% of employment across OECD countries, in these sectors the share of SMEs in employment is 75% on average across OECD countries, and nearly 90% in Greece and Italy (see Figure 1 and Figure 2) (OECD, 2020[30]).26 In some OECD countries, microenterprises are particularly strongly represented in affected sectors. In Italy and Greece, the share of microenterprises in the most affected sectors is 60%, whereas their share in total employment in the business economy is respectively 45% and 55% (OECD, 2020[30]).

 

Figure 1. Smaller firms dominate in the most affected sectors

Share of total employment in the most adversely affected sectors by firm size (%)

Source: OECD (2020) Strong, medium, vulnerable (OECD, 2020[30])

 

Figure 2. Employment by enterprise size, business economy

Percentage of employment in 2016 or latest available year

Source: OECD (2019) SME and Entrepreneurship Outlook (OECD, 2019[31])

A similar analysis was made in a recent Brookings paper (Parilla, Liu and Whitehead, 2020[32]), which classifies industries in three categories according to the risk of being affected by COVID-19 (immediate risk, near-term risk, and long-term risk), and looks at the presence of small businesses in each of these categories. According to the study, about 26% of small business establishments (those with fewer than 250 employees) in the United States are in the immediate risk category, and 28% in the near-term risk category. Combined, these two categories include 54% of small businesses (4.2 million total) and 47.8 million jobs. Microbusinesses (employers with fewer than 10 employees) within industries at immediate or near-term risk account for 2.9 million business establishments and 8.7 million jobs.

A study by the Central Bank of Ireland (McGeever, McQuinn and Myers, 2020[33]) shows that in highly affected sectors SMEs accounted for 79% of annual turnover in 2017, and for 59% of annual turnover in highly and moderately affected sectors combined, defined according to the impact of social distancing measures. To put this into perspective, the share of SMEs in value added in the business economy in Ireland was 44% in 2016. The study also suggests that of total employment in SMEs, 39% is in highly affected sectors and 71% in highly and moderately affected sectors combined. This puts the total number of jobs at risk in SMEs at 770 000, 50% of all employment in the non-agricultural business economy, and almost 75% of the total number of jobs affected by the pandemic (see also (McCann and Myers, 2020[34]).

(McKinsey, 2000[35]) indicates that minority-owned small businesses are even more vulnerable than SMEs in general, because of their smaller size, lack of access to credit and risky nature of their business, but also because of their high prevalence in strongly affected industries.

SMEs and jobs at risk

A recent study on the impact of the pandemic in Europe (McKinsey, 2020[15]) investigates jobs most at risk,27 and finds that "at least two of three jobs at risk are in an SME, and more than 30 percent of all jobs at risk are found within microenterprises consisting of nine employees or fewer". In Australia, SMEs account for 68% of all jobs at risk (McKinsey, 2020[36]).

The ILO Monitor on COVID-19 and the world of work (ILO, 2020[5]) shows that worldwide employment in the sectors most at risk is strongly concentrated in firms with less than 10 employees, whereas vice versa the vast majority of employment in low risk sectors is in larger firms with more than 10 employees. For instance, in sectors such as wholesale and retail trade, repair of motor vehicles and motorcycles, the share of firms with less than 10 employees is 70%, whereas in low risk sectors such as education, utilities and public administration the share is less than 20%.

The German research institute IFM developed two scenarios to assess the impact of the crisis on SMEs (Welter, Wolter and Kranzusch, 2020[37]). In a scenario where the lockdown would be limited to 2-2.5 months, for most SMEs (Mittelstand) the crisis would not lead to liquidation, although the impact on retail, cultural and leisure industries may be large. In case the lockdown would continue for more than six months, significant job losses of between 850 000 and 1.6 million are expected among SMEs, especially among microenterprises.

In the United States, of the 20 million jobs lost in April, 11 million came from small and medium sized businesses.28 New Zealand saw a 4% decline in jobs in small businesses in March and April.29

In Canada, it was reported that women-owned businesses laid off a disproportionally higher share of their workers. 62% laid off more than 80% of their workers, against 45% for the small business population at large.30

SMEs and partial redundancies

French labour market data from early April on partial redundancies of employees by firm size provide interesting insights (Table 2).31 The data show that SMEs account for nearly the entirety of partial redundancies (93%), whereas their share in employment in France is 63%. Microenterprises alone account for 42%, whereas their share in employment is 30%. Although subsequent labour market survey show a small decline in the share of microenterprises (39% on 14 April32), it is clear that their share in redundancies continues to vastly exceed their share in employment.

(Altonji et al., 2020[38]) use Homebase data to analyse the impact of the pandemic on hours worked in small businesses in the United States. They find that average hours worked fell strongly in March, and although they slightly recovered, by 6 June they were still 35.9% below their value in late January. They find that reductions in the number of firms in operation and in the number of employees account for most of the hours reductions. Changes in hours worked by continuing employees are secondary. Reductions in hours and employment were larger for workers with lower wages. They find little difference in the reduction of hours worked between smaller and larger firms and attribute this to two offsetting effects. Smaller firms were substantially more likely to shut down than were larger firms. Larger firms that stayed open, on the other hand, were substantially more likely to reduce their number of employees. Per saldo, the impact was similar. The biannual monetary policy report by the US Federal Reserve Bank (Federal Reserve Bank, 2020[39]) also shows how activity was the main cause for employment declines to be deeper for small firms than for larger ones (Table 3).

In Australia, hours worked by the self-employed fell by 32% since the start of the pandemic, compared to a 9% reduction in hours worked across the economy.33 Another study on Australia suggests the difference in the drop in hours worked between self-employed and employees was 6.5% (Biddle et al., 2020[40]).

SMEs and impact on employee earnings

Recent research in the United Kingdom on the expected impact of the crisis on employee earnings by firm size shows that the drop in earnings could be considerably higher for employees in smaller as compared to larger firms, and that younger employees risk losing out most (Figure 3). 34 The paper suggests that because of the crisis the ‘large firm wage premium’ may increase (Bell et al., 2020[41]). (McKinsey, 2020[11]) shows how lower-income workers, minority business owners, and business owners with less educational attainment are particularly vulnerable to the crisis.

 

Figure 3. Expected change in earnings of employees by firm size

Note: % fall in real weekly earning based on work exposure regressions. Assumes 10% nominal fall in GDP, deflated by inflation forecast of 2%.

Source: Office of National Statistics. (2017) New Earnings Survey Panel Dataset, 1975-2016: Secure Access. [data collection]. 7th Edition. UK Data Service. SN: 6706, http://doi.org/10.5255/UKDA-SN-6706-7.

SMEs and liquidity gap

Several studies aim to calculate the expected liquidity shortage of SMEs due to the pandemic and lockdown. These calculations vary widely according to the underlying assumptions, for instance on the expected duration of the lockdown measures and the types of costs expected to be covered by governments. To calculate the liquidity gap, the studies in various ways try to assess: i) the size of the drop in revenues, ii) the ongoing costs, iii) the access to resources to address this, and iv) the government support offered. Some of these studies explicitly focus on SMEs, other do not.

(OECD, 2020[42]) evaluates the risk of a widespread liquidity crisis using a cross-sector sample of almost one million firms in 16 European countries, covering all manufacturing and non-financial service sector. The note focuses on the first-round effects of the containment measures induced by the crisis, abstracting from the potential cascading effects via supply chains (including global value chains), financial interconnections between firms and financial distress in the banking system – other than those implicitly assumed in the size of the sectoral shocks – as well as from the structural adjustments that will be needed in a second phase of the response to the crisis.

Comparing the share of firms that would turn illiquid under a no-policy change scenario and under policy intervention, results emphasise the key role of policies to avoid massive unnecessary bankruptcies. The note shows that without any policy intervention, 20% of the firms in the sample would run out of liquidity after one month, 30% after two months and 38% after three months. If the confinement measures lasted seven months, more than 50% of firms would face a shortfall of cash. This result is mainly driven by the impact of the confinement in the most hit sectors. The note underlines these estimates on liquidity shortages should be seen as a lower bound, since the dataset excludes very small firms and on average includes more larger, older and more productive firms, whereas liquidity shortages for smaller, younger and less productive firms could be higher. Adding up different policy measures (tax deferral, debt moratorium and wage subsidies at 80% of the wage bill), the note suggests that, after two months, government interventions could decrease the share of firms running out of liquidity from 30% to 10% compared to the non-policy scenario.

(Gourinchas and Kalemli-Özcan, 2020[43]) estimate the impact of the COVID-19 crisis on business failures among SMEs for seventeen countries and measure each firm’s liquidity shortfall during and after COVID. For each country and sector, the paper estimates the fraction of SME businesses that would fail by year end, absent fresh liquidity injections or public support. Across the seventeen countries, the authors estimate an average SME bankruptcy rate of 12.1 percent in the absence of any policy intervention compared to a baseline of 4.5 percent without COVID-19.

The paper also evaluates the impact of various policy interventions. Interest payment suspensions have only a very modest effect on business failures. Narrowly targeted interventions can have much larger effects for a relatively modest fiscal cost. The paper suggests that through such policies at a cost of 1.1% of GDP the bankruptcy rate could be brought back to its pre-COVID level, a decline of 8.75 percent. This would save about 1.5% of GDP in wages and about 5% of employment. However, blanket interventions can be quite wasteful. As an illustration, a subsidy equivalent to the entire 2017 payroll for the duration of an 8-week lockdown would decrease SME’s bankruptcy rates by 4% at a cost of 2.38% of GDP, saving 3% of employment. 2% of the fiscal cost, however, would be wasted on firms that do not need it.

(Bircan et al., 2020[44]) provide a firm level analysis on 19 countries to assess not only the need of SMEs for cash and liquidity but also where these firms still have room on their balance sheets to take more debt. They find wide variations between countries, indicating the liquidity challenge for SMEs differs by country.

(Revoltella, Maurin and Pal, 2020[45]) find that in the European Union, cumulative net revenue losses for companies in a 3 months lockdown scenario amount to 13-24% of GDP, with over half of firms facing liquidity shortfalls even after substantial policy intervention. SMEs face larger revenue losses than larger firms as a percentage of total assets (6-11% for SMEs, 2-4% for larger firms).

A study by the Central Bank of Ireland (McGeever, McQuinn and Myers, 2020[33]) on the size of the liquidity gap for SMEs in Ireland assumes that the cause for liquidity challenges stems primarily from non-personnel costs, since wage costs are assumed to be largely compensated by the government. Distinguishing between various shares of SMEs in highly and moderately affected sectors that would seek external finance, and various proportions of non-personnel costs that would need to be covered over a period of three months, the study estimates the potential liquidity gap for SMEs to be between EUR 2.4 and EUR 5.7 billion. Although Irish SMEs in June 2019 had EUR 2.7 billion in undrawn credit available from Irish retail banks, this is very unevenly spread across borrowers, with a relatively small set of borrowers accounting for a large majority of outstanding and undrawn balances. 80% of undrawn balances were committed to just 10% of borrowers. The authors therefore conclude that given this distribution across firms, existing bank credit lines are unlikely to be sufficient to cover the EUR 2.4-5.7 billion financing needs of all affected firms over a three month period.

(Drechsel and Kalemli-Ozcan, 2020[46]) and (Drechsel and Kalemli-Özcan, 2020[47]) calculate the liquidity gap in the United States, and discusses policy measures to address this. Contrary to the Irish study, this study takes payroll costs as a proxy for costs to be covered and the liquidity gap by firm size. Covering the payroll costs for firms with less than 100 employees for 3 months would for instance amount to USD 449 billion; extending this to firms of less than 500 employees would cost USD 678 billion. Estimates by the American Property Casualty Insurance Association in the US suggest that business interruption costs for small business (less than 100 employees) amount to USD 220-431 billion per month.35

(Liu and Parilla, 2020[48]) show how in the United States the liquidity challenge for small businesses varies widely across regions and cities. Loss of revenue varies between 74% in Buffalo, NY to 58% in Jacksonville, Fla. Similarly, the percentage of small business that only has 4 weeks cash reserves varies between 65% (Buffalo, NY) and 38% (Columbus, Ohio).

(Schivardi and Romano, 2020[49]) calculate the number of companies (all sizes) that run into liquidity problems and the size of the liquidity challenge in Italy. Under a mild scenario (i.e. the pandemic crisis ends in September), they estimate that 50 000 companies would need liquidity support. Under a more pessimistic scenario, with the crisis continuing into 2021, these estimates raise to 100 000 companies. The liquidity gap would amount to between EUR 30 and 80 billion.

(Carletti et al., 2020[50]) also look at the equity shortfall of Italian firms due to COVID-19. For a three-month lockdown, they estimate an aggregate annual drop in profits of EUR 170 billion, with an implied equity erosion of EUR 117 billion. The share of SMEs that face distress because of liquidity challenges in lockdown is higher than the share of large firms (17.2% compared to 6.4%).

A stress test on SMEs in the Netherlands shows that during the first three months of the crisis 30% of SMEs ran into a liquidity shortage, amounting to EUR 12 billion. After six months, 48% of SMEs were facing liquidity problems of a total of EUR 30 billion. Even with the support policy measures in place, in 6 months’ time 25% of SMEs will have a negative liquidity position, which would reduce to 17% in a 3 months scenario (CPB, 2020[27]) (CPB, 2020[51]).

SMEs and supply chain disruptions

(McCann and Myers, 2020[34]) analyse the impact of supply chain disruptions due to the pandemic, estimating that between EUR 35 and 40 billion of business to business purchases in Ireland in 2019 were in the highly and moderately affected sectors.36 A drop in such purchases is likely to also affect both SMEs and larger firms in sectors not directly impacted.

(WTO, 2020[52]) illustrates the different impact of supply chain disruptions on SMEs across countries and industries. MSMEs are especially impacted through import channels in sectors such as office equipment, electronics, chemicals, petroleum and plastic sectors, in which MSMEs import from foreign countries accounts for almost 60% of total inputs (backward participation). On the other hand, export disruptions impact strongly small businesses in the automotive and furniture sectors, since MSMEs – especially foreign-owned MSMEs – export more than 40% of their total sales through direct or indirect trade channels (forward participation). The report also documents that SMEs in the most affected sectors (see 3.3.1) are relatively more likely to export than larger firms, and hence bear more strongly the brunt of rising protectionism in these sectors (for instance in agriculture).

Start-ups

The impact of the pandemic may be particularly harsh for start-ups (Sedlácek and Sterk, 2020[53]). The first evidence suggests that the impact on firm creation may be even stronger than during the financial crisis. For instance, data on new business applications from in the United States from the last week of March show that applications were down 40% compared to the same week one year earlier, a contraction that is even sharper than that during the Great Recession. Figure 4 illustrates that business applications declined in all US states and is negatively related to the severity of the pandemic, which most likely reflects the intensity of lockdown measures.

 

Figure 4. Decline in start-up growth and COVID-19 deaths by state

Note: Horizontal axis: Change in high-propensity business applications during weeks 12–15 of 2020, relative to the same weeks in 2019, by US state. Source: Business Formation Statistics. Vertical axis: Total number of COVID-19-related deaths in the US

Source: Centers for Disease Control and Prevention; https://voxeu.org/article/startup-employment-calculator-covid-19.

 

Figure 5. COVID in 2020: New York State and Washington State New Business Registrations

Source: The Start-up Cartography Project

Data from the US Start-up Cartography Project37, show how new business registrations fell by more than 75% relative to the prior year from 15-16 March onwards – the day when lockdowns started (Figure 5). According to the analysis, this drop cannot be explained by the closure of government offices.38

(Howe, 2020[54]) documents that between 1 February and 28 March new business applications in the United States declined by 37% from 84 730 to 53 510. However, from April onwards the decline in new business applications has become smaller (Federal Reserve Bank, 2020[39]).

In the Netherlands, the number of start-ups dropped by 34% in April 2020 compared to April 2019, in particular in business services and construction.39

The drop in start-up (and potentially scale-up) activity can also be illustrated by declines in investment. For instance in China venture capital investment in new companies declined by 60% in the first quarter of 2020 compared to the first quarter of 2019 – three times the drop during the 2017-2019 crisis (Brown and Rocha, 2020[55]).40

Venture capital funding in Irish technology firms in Q1 2020 was reported to be 40% down compared to the same period in 2019, when corrected for a very large investment early in 2020, with the value of smaller deals (EUR 1-5 million) declining by 44%, and is expected to further decline in Q2.41

A recent survey in Canada, suggests that 59% of Canadians are considerably less likely to start a business after COVID-19 than before.42 Rabobank indicates that in its post COVID-19 projections it is factoring in lower levels of entrepreneurship (Erken, 2020[56]).

Bankruptcies

Bankruptcies in OECD countries are expected to rise as a consequence of the pandemic (OECD, 2020[1]). The Q2 Barometer from credit insurer and risk-management company Coface expects insolvencies to rise by one third world wide until 2021, ranging from 12% in Germany, 21% in France, 24% in Japan, 37% in the United Kingdom to 43% in the United States, 44% in Brazil and 50% in Turkey.43

In Japan, due to the effects of the coronavirus bankruptcies sharply increased, up by 15% in April 2020 15% (to 748 filings) compared to April 2019, especially affecting SMEs in the tourism and accommodation sectors44, with forecasts predicting over 10.000 bankruptcies in 2020.45 The Netherlands report a rise in bankruptcies in April 2020 (as compared to April 2019) of 36%, primarily in retail and the hospitality industry.46 Further analysis suggests that bankruptcies in the Netherlands may double or triple in 2021 as compared to 2019.47 The American Bankruptcy Institute reports a 14% increase in Chapter 11 filings in the first quarter of 2020 as compared to Q1 2019, and expects those to continue rising.48 Data from May suggest a further rise by 48% compared to May 2019.49 In the United States, between March and mid May 100 000 small businesses have closed and that – according to a survey between 9 and 11 May (Bartik et al., 2020[8]) – 2% of small businesses have closed down for good.50 In Mexico, 10,000 formal and 12,000 informal businesses closed down for good in April and May, with 600,000 more companies at risk due to the pandemic.51 Australia, however, witnessed a decline in insolvencies in March, which at 683 companies was the lowest for March since 2007, which is explained by the hibernation support measures put in place by the government.52 In Italy, almost 30 000 of companies went out of business in the first three months of 2020, compared to 21 000 in Q1 2019.53

(Prashar et al., 2020[57]) provide an assessment of the impact of COVID-19 on business dynamism in the UK. The paper compares company incorporations and dissolutions in the first quarter of 2020 with the same period in 2019 and observes a drop in incorporations and an increase in dissolutions. The analysis shows that there has been a 70% increase in the number of company dissolutions in March 2020 compared to March 2019. The sectors particularly influenced by this trend are Wholesale & Retail, Professional Services, Transportation & Storage, Information & Communication and Construction. The increase in company dissolutions is driven by young firms which appear as the most vulnerable when facing uncertainty and the current unprecedented challenges.

(Fairlie, 2020[58]) looks at the impact of COVID-19 in the United States and finds that the number of active business owners declined by 3.3 million (22%) between February and April 2020. African-American businesses experienced a 41% drop. Latino business owners fell by 32%, and Asian business owners dropped by 26%. Immigrant business owners experienced substantial losses of 36%. Female-owned businesses were also disproportionately hit by 25%.

(di Mauro and Syverson, 2020[59]) discuss the channels by which the pandemic may impact future productivity growth. They highlight potential risks of policies supporting labour hoarding for productivity, but estimate it is too early to assess in what way reallocation will affect productivity growth. Similarly, (Erken, 2020[56]) discuss the longer term productivity impact of the pandemic, through lower R&D investment, a possible retraction of value chains and reduced efficiency due to lower creative destruction and labour hoarding. (Isenberg and De Fiore, 2020[60]) expect that if entrepreneurs do not experiment and adapt, many ventures will ‘either disappear or join the rapidly swelling ranks of zombie companies.’ However, other analysis points at substantial reallocation from less to more productive sectors because of the pandemic (Abay, Tafere and Woldemichael, 2020[61]). (OECD, 2020[42]) shows that firms facing a high risk of liquidity shortfalls are mostly profitable and viable companies. Only a relatively small share of firms (around 10%) among those expected to face liquidity shortfalls would be close to insolvency when evaluating their overall net worth.

SME debt

Many of the policy measures implemented to sustain businesses through the COVID-19 crisis adopt debt financing instruments. As a consequence, SME debt may rise significantly. This may be pose challenges to business solvability, especially in countries that already exhibited high debt leverage in private companies. In Europe, the most recent ECB SAFE Survey reports ongoing declining debt-to-total-assets ratios for SMEs, although less than in the previous Survey (-4% from -7%), but cross-country differences can be noted (Figure 6) (ECB, 2020[62]).

 

Figure 6. Change in debt-to-total-assets ratio and interest expenses of SMEs across euroarea countries

Source: (ECB, 2020[62])

While information on the increase in SME debt since the crisis outbreak is limited, early evidence suggests that crisis policy responses may have increased SME debt leverage significantly. In Spain, the proportion of SMEs that uses bank loans rose from 6 to 37% between October 2019 and March 2020.54 In Canada, a survey by the Federation of Independent Business (CFIB) indicates that, on average, small businesses have taken up CAD 150,000 in debt due to the crisis.55 Also, media report that the debt-to-equity ratio of non-financial firms rose to 212% in Q1 of 2020, the highest ratio since 2009.56 In France, companies (which already had record debt levels of 70% of GDP before the pandemic) during the first two months of the lockdown took up a further EUR 100 billion debt, three quarters of which went to SMEs.57 According to the Italian Central Bank, as a result of debt financing in the COVID-19 policy response, the 80% debt-to-equity ratio in Italy from 2018 could rise by 10-30%-point. In Israel, start-ups have taken USD 144 million in bank loans, since other non-debt avenues for raising funding were cut off through the crisis.58 In Korea, the Financial Services Commission warned in early July that repayment deadline of SME debts related to support in the COVID-19 context amounting to USD 83.4 billion were nearing, with serious risks for the economy.59

Data from the Bank for International Settlements (BIS), indicate for Q4 201960a 165% share of core debt of private non-financial companies to GDP in the Eurozone and of 150% in the United States, which is expected to rise because of the financial support measures.61 Credit to non-financial companies in the euro zone hit an 11-year-high in April, with more than EUR 290 billion of loans in government-backed lending schemes granted across the European Union’s four largest economies and the United Kingdom during the continuing coronavirus slump.62 A study by the EIB expects an increase in indebtedness of between 4-6% of GDP for EU companies (Revoltella, Maurin and Pal, 2020[45]). A further study on the impact of the pandemic on capital markets in Europe (AFME, 2020[63]) reports that bank lending to SMEs has rapidly increased to record gross volumes of EUR 71 billion, EUR 103 billion and EUR 91 billion in the months of March, April, and May of 2020, respectively. In the United Kingdom, new gross bank lending to SMEs between March and May of 2020 totalled GBP 35 billion versus GBP 13.7 billion in the same period of 2019. Similar large increases have been observed in France (EUR 69.6 billion in March-May 2020 vs EUR 29.3 billion in same period of 2019), Germany (EUR 43 billion vs EUR 40 billion), and Spain (EUR 64 billion vs EUR 49 billion).

Recovery rate

A further important aspect regards the question of how recovery will take place for SMEs as compared to larger firms. For many countries where lockdown measures are still in place or only gradually being lifted, it is too early to answer that question. However, some evidence from China shows that SMEs are recovering more slowly than larger firms. For instance, data from China from 28 March show that the industry resumption rate was 98.6% and 89.9% of industry employees have returned to work. 63 Even in Hubei Province, the resumption rate has exceeded 95%. As for industrial SMEs, the resumption rate is 76%. Similarly, the Chinese manufacturing Purchasing Managers Index (PMI), which provides an early indication each month of economic activities in Chinese manufacturing, shows that recovery among the largest firms has been faster than for small and medium sized firms (see Figure 7). By 11 May, the resumption rate of large industrial enterprises has reached 100% in half of the 100 biggest cities (by GDP) and 99.1% on average across the country. For industrial SMEs, the resumption rate was 84% by 15 April, a significant increase from 76% on 28 March. On 20 May, the government indicated that 91% of SMEs had resumed operations.64 Whereas in May the PMI for smaller firms contracted, whilst it increased for larger firms65, media reported an improvement again in June.66

 

Figure 7. Manufacturing Purchasing Managers Index in China by firm size

Source: http://www.stats.gov.cn/tjsj/zxfb/202003/t20200331_1735877.html

Short term work (STW) schemes and wage support

Most OECD countries operate STW schemes (OECD, 2018[66]), which have been actively deployed in the context of the COVID-19 pandemic (Giupponi and Landais, 2020[67]) (OECD, 2020[68]). Various countries are opening up existing arrangements for companies to reduce working hours of their employees and their temporary redundancy. Many countries are expanding existing schemes or developing new ones. In Belgium, new options for partial unemployment for force majeure have been created, with provisions for temporary unemployment prolonged by three months and approval of requests within 3-4 days. Germany eased conditions for access to short-term work arrangements, by reducing the required percentage of workers involved from one-third to 10%. Denmark and Hungary relaxed employment legislation to allow companies to reduce employees hours temporarily. France is shortening procedures to encourage firms to have recourse to temporary lay-offs. Brazil eases possibilities to suspend employment contracts. Portugal simplified the lay-off regime for companies whose activities are affected by Covid-19 pandemic.

To compensate workers for reduced working hours through STW, governments pay (parts of) employee salaries for hours not worked. Brazil introduced possibilities for firms to reduce working hours and pay by up to 50% while maintaining the employment link. Further flexibility for firms will come from extended use of leave days and the possibility to anticipate annual leave, including collective annual leave. In France, the government will reimburse 100% of partial employment compensations (up from 70% previously). Norway is providing government support for wages when companies temporarily lay off workers, and is allowing companies to give two days’ notice to workers. Slovenia introduced an intervention law for co-financing temporary lay-offs. In Sweden, the government covers three quarters of the costs when staff working hours are reduced and covers one third of the cost for short-term workers. In Switzerland, companies can apply for part-time unemployment for employees, including subsidies for firms putting staff on shorter working hours. In addition, emergency aid to compensate salaries of temporary redundancies is being provided. In the Netherlands, companies expecting a drop in value added (minimum 20%), can ask for a compensation of 90% of wage costs, where 80% can be given in advance. In Denmark, the government increased security for employees’ jobs and support for wage costs through the Compensation for Corporate Expenses. In Poland, employers who find themselves in a difficult situation related to the spread of coronavirus will receive support from the Guaranteed Employee Benefits Fund. The financing will apply to companies whose turnover will drop by at least 15%. Romania is covering 75% of the salary of employees sent into technical unemployment by companies affected by the coronavirus crisis. Spain has extended social security bonuses in discontinuous fixed contracts to cover contracts from February to June 2020 in the tourism sector to preserve employment.

In some countries, wage subsidies are provided without a direct link to STW. Canada introduced a Canada Emergency Response Benefit of CAD 2 000 per worker for a maximum of four months. New Zealand is providing NZD 5.1 billion in wage subsidies for affected businesses in all sectors and regions. A Jobs Support Scheme in Singapore offsets 8% of wages for 3 months (subject to a cap) in order to help firms retain workers. The ceiling for the Wage Credit Scheme was raised to SGD 5 000.

A number of countries have set-up wage support specifically targeted to SMEs. In Brazil, the government will pay part of the salaries for micro and small companies. In Canada, small-business owners will receive a temporary wage subsidy equal to 10% of their salary bill for a period of three months. An Emergency Fund in Korea provides direct financial support to SMEs and self-employed, aimed at encouraging these firms to keep their employees.

Sick leave

There is large variation in the form and intensity of government financial contributions to costs related to sick leave and wage costs due to (partial) unemployment. Whereas in Denmark employers will be reimbursed completely by the government from the first day that an employee becomes ill or enters quarantine due to coronavirus, other countries offer partial reimbursements. For instance, in Brazil, the government will pay for the first 15 days of leave of the worker with COVID-19. In Latvia, the government will cover 75% of the costs of outbreak-induced sick leaves or workers’ downtime, or up to EUR 700 per month, per worker. In the United Kingdom, businesses employing fewer than 250 people are entitled to government refunds on any sick pay they give to the employees in the first two weeks. Small companies will be able to reclaim the costs of 14 days of sick pay (under GBP 200 per week) per employee. New Zealand is providing a NZD 126 million in COVID-19 leave and self-isolation support. Chile is extending unemployment insurance to those who are sick or unable to work from home.

Several countries have introduced specific measures to support the self-employed (see Box 1).

Income/corporate tax

Deferral of tax most often is introduced for corporate and income tax. In some countries, deferral of income and corporate tax has been targeted to specific sectors. Colombia, for instance, introduced deferral of income taxes for the tourism and aviation sectors. The United Kingdom gives all retail, hospitality and leisure businesses in England a 100% business rates tax holiday for the next 12 months;

The period for which deferral for corporate and income tax is offered differs widely. Many governments offer a period of two or three months (for instance Brazil, Croatia). Spain offers a deferral of six months. Canada introduced deferral of income tax until 31 August. Estonia extends deferral to 18 months. In Norway, companies liable for employee withholding taxes do not have to make second-term payments until 1 September rather than the scheduled cut-off of April 15.

No interest is charged on the delayed payments in many countries, such as Canada, Ireland, Lithuania, and the United Kingdom. Several countries announced that enforcement measures and penalty surcharges will be paused (for instance Canada, Czech Republic, Germany, Lithuania, and the Netherlands). Some countries offer payment in instalments after the deferral period. In Croatia, payments can be made in instalments of 24 months.

Some countries stop the payment of tax advances (Czech Republic), and/or speed-up the repayment of advances or rebates to SMEs (Latvia, Norway). Some countries offer lenience for tax overdue. Latvia, for instance, postpones tax overdue payments for up to three years if the overdue is an effect of the outbreak. Poland introduced a new method of loss settlement by entrepreneurs, with losses incurred in 2020 to be deducted from the tax that was due for 2019.

Some countries have announced specific budgets for tax deferral. Austria, for instance, installed EUR 10 billion in tax deferral. Denmark provides a DKK 125 million credit facility allowing firms to defer VAT and tax payments. New Zealand introduced a NZD 2.8 billion in business tax changes to free up cash flow, including a provisional tax threshold lift, the reinstatement of building depreciation and writing off interest on the late payment of tax.

Value Added Tax (VAT)

Several countries introduced possibilities for deferral of VAT. In some cases, deferrals are focused on specific sectors such as tourism and transportation (Colombia, Turkey). Other countries provide across the board deferral. Greece, for instance, introduced a four-month deferral of value-added tax (VAT) payments due at the end of March for companies operating in areas affected by the outbreak and which shut down for at least 10 days.

Deferrals are granted for three months to a year. Sweden introduced a deferral of VAT for three months, which is to be granted for up to 12 months retroactively applied from 1 January 2020. In some cases, VAT payments are waived (see Box 2).

Social security and pension contributions

A number of countries enable deferral of social security contributions and pension payments. Given the wide differences in social security and pension systems, measures differ widely. In some cases, the focus of deferral is on specific sectors. For instance, Spain extended social security bonuses in discontinuous fixed contracts to cover contracts from February to June 2020 in the tourism sector. Turkey introduced a deferral of social security premiums by six months for retail, iron and steel industries, shopping malls, automotive, entertainment and hospitality sectors, food and beverage businesses, textiles as well as event organisation sectors. Hungary introduced an exemption of social security contributions for sectors that were severely hit by the pandemic (tourism, film industry, restaurants, entertainment venues, gambling, sports, cultural services, passenger transportation).

The deferral periods range from three months (Brazil) to seven months (Portugal). For instance, Greece introduced a four-month deferral of social security payments due at the end of March for companies operating in areas affected by the outbreak and which shut down for at least 10 days. Israel has postponed National Insurance payments for the month of April, and allows payments in instalments. In Sweden, companies can defer payment of employers’ social security contributions for three months and for up to 12 months, retroactively applied from 1 January 2020. In some cases, payments are waived (see Box 2). In some cases, the suspension is related to the measures on reducing working hours, as part of compensation to avoid (permanent) job losses.

Some countries (China, Estonia) include pension payments in the deferral measures. Estonia, for instance, suspended payments in Pillar II of the pension system.

Rent/utilities/local tax

Some countries or local governments have extended deferrals to payments of local and property tax (Singapore, Belgium (Brussels Capital), Israel, Japan, Lithuania), rent (China, France, Thailand) and utility costs (Belgium (Wallonia), France, Lithuania) with the aim of avoiding costs and liquidity problems for companies. In some cases, the measures are specifically aims at SMEs or small businesses. For instance, the measures in France and Japan specifically target small business. In Hungary, evictions of small businesses unable to pay rent are suspended. Slovenia has temporarily freed small business customers and households from the obligation to pay for the support to producers of power from renewable sources and high-efficiency cogeneration. Additionally, the network charge has been significantly lowered.

Debt payment moratorium

In some countries, a deferral of debt payments was introduced in the form of a debt moratorium (see Box 3). In some countries, these are private initiatives by commercial banks. In other cases they are set-up or backed by the government.

Public procurement and payment

Some countries provide deferral and relief through public procurement measures. A number of countries have introduced derogations from standard procedures to cover extraordinary needs (e.g. Sweden, Portugal, Poland, Greece). Several countries stopped delay penalties regarding public contracts (Belgium, France), and have speeded up approval procedures in sectors like construction or chemical (France). Denmark and Israel offer an advance in payments of procured goods. In Korea procurement processes have been simplified by limiting on-site inspections. In New Zealand, administrations have been directed to pay their bills within ten working days to support small business.70 In several countries, retailers committed themselves to rapid payment of their small business suppliers. In China and Israel, the government promotes buying from local SMEs.

New initiatives

Several countries have introduced new guarantee schemes in response to the crisis. For instance, Denmark introduced two new loan guarantee schemes, one specifically SMEs. The government will guarantee 70% of the value of any new bank loans given to SMEs who have seen operating profits fall by more than 50%. In Israel, a special loan facility has been introduced for struggling companies, primarily SMEs, to receive support from the State Guarantee Fund for Small Businesses. Japan is offering a specific guarantee programme for firms affected by the outbreak and whose sales and other profits are declining. The Japan Federation of Credit Guarantee Corporations (JFG) will guarantee the full loan amount for such SMEs, under a new framework.

Available funding

Several countries have significantly raised the amount of funding available for loan guarantees. For instance, in Germany, the amount of guarantees provided by guarantee banks will be doubled to EUR 2.5 billion, with the government assuring it will provide an unlimited supply of loans. The Austrian Wirtschaftservice (AWS) is providing new guarantees for SMEs worth EUR 10 million up to 80% of the loan amount or EUR 2.5 million for five years. Italy introduced a EUR 1.5 billion increase in the appropriation of the Central Guarantee Fund for SMEs. New credits in France are being offered by Bpifrance with guarantees on loans made to SMEs worth EUR 300 billion. Portugal introduced EUR 3 billion in state-backed credit guarantees and a EUR 200 million credit line to support companies’ treasury needs, with a credit line of EUR 60 million available for micro-companies in the tourism sector. Switzerland rapidly increased the amount of guarantees available when it appeared demand for support was very strong. The United Kingdom introduced a GBP 330 billion rescue package of loan guarantees for business.

Level of public guarantee

Furthermore, countries have increased the level of guarantees that governments are offering on credit. In several countries (Germany, France, Switzerland) the public guarantee has been raised to 100% for certain loan categories. Israel increased state guarantees to 85% of the loan amount and reduced collateral up to 10%, with longer repayment period up to 5 years. In the Netherlands, the guarantee ceiling of the Guarantee Entrepreneurs finance measure (GO) was raised from EUR 400 million to EUR 1.5 billion. The first tranche of new guarantees in Spain offers 80% of public guarantee. In Singapore, the government’s risk-share as part of the Enterprise Financing Scheme’s Working Capital Loan was increased to 80% and the maximum loan amount was doubled to SGD 600 000 per annum.

Coverage

A further measure undertaken to support loan guarantees is to extend the scope and coverage. In Austria, self-employed can now apply for guarantees as well. In Germany, guarantees apply to liberal professions. In Italy, debt rescheduling operations are eligible for the public guarantee. The Netherlands opened up the guarantee instrument for SMEs (BMKB) to those affected by the outbreak, providing EUR 300 million extra credit for SMEs.

Administrative procedures

Some countries have simplified administrative procedures to ease the access to loan guarantees. The Austrian Wirtschaftservice (AWS) has waived fees for handling and requires no planning calculations, business plans or loan collateral. A fast-track procedure will be introduced to enable guarantees to be given immediately. In Finland, the state-owned financing company Finnvera provides an instalment free period for loans granted. Bpifrance France has put in place support teams will help the 1 500 accelerated start-ups to date to manage the crisis and in particular the cash position. In Israel, loan approval at the bank has been shortened to up to 9 working days. Italy and Poland have lifted fees for guarantees.

New loan schemes

Several countries have set-up specific new loan schemes to support companies affected by the outbreak. Austria, Croatia and the Czech Republic have introduced specific COVID-19 loan funds, providing working capital to SMEs. In Australia, the government is introducing a time limited 15 month investment incentive (through to 30 June 2021) to support business investment and economic growth over the short term. Canada introduces a new Business Credit Availability Program which will provide more than CAD10 billion of additional support to businesses experiencing cash flow challenges. Ireland introduced a EUR 200 million working capital scheme implemented by the Strategic Banking Corporation of Ireland and targeting firms that are considered to be significantly impacted. The United Kingdom introduced a GBP 1.2 million "Coronavirus Business Interruption Loan" for small and medium sized businesses affected by coronavirus. The new USD 2 trillion United States stimulus package includes a USD 367 billion scheme for small and medium sized firms (with fewer than 500 employees). The programme would give loans without interest of up to USD 10 million to pay for employee salaries, rental costs and other expenses. These loans would be forgiven in proportion to the share of staff kept in employment.

Specific sector

Some countries focus new loan instruments on specific sectors. Columbia opened-up a new credit line for the tourism and aviation sector. In Austria, EUR 100 million is available for loans to hotels that suffer more that 15% losses in sales. Brazil has also opened a working capital loan line for small and medium-sized firms of tourism and service sectors and the simplification and waiver of documentation (CND) for credit renegotiation. Spain introduced a EUR 400 million credit line to most affected sectors such as tourism and transport.

Increase of funding of existing loan schemes

Furthermore, several countries have increased the amount of funding available for lending to SMEs through existing lending schemes. In Brazil, the state-owned Federal Savings Bank will extend USD 14.9 billion in credit lines to small-and medium-sized firms aimed at working capital, purchase of payroll loan portfolios from medium-sized banks and agribusiness. The bank also cut interest rates on some types of credit and offered clients a grace period of 60 days. Japan expanded the amount of the special loans offered to SMEs (to JPN 1.6 trillion) with zero-interest loans with no collateral to SMEs. SMEs facing more than a 15% decrease in sales can claim compensation of interests and can borrow without collateral. Luxembourg offers financial aid for SMEs facing financial difficulties through instruments regarding ‘exceptional events’. The aid will take the form of a repayable advance. The scheme should cover the income lost and ongoing costs of staff and rent, in the form of a recoverable advance. Firms can borrow up to EUR 500 000, up from 200 000. In the United States, next to the Economic Injury Disaster Loan Assistance programme of the Small Business Administration (SBA), the Payment Protection Plan offers EUR 349 billion in loans (non-repayable if businesses maintain employment). High demand for the facility led the administration to propose further raising the amount of funding available.

Easing of access and conditions

Countries have also eased the procedures and conditions for obtaining loans. For instance, Business Development Canada (BDC) offers a Small Business Loan of up to CAD 100 000 which can be obtained online in 48 hours from time of approval.

Measures to find new and alternative markets

Some countries have adopted measures to support SMEs in recovering markets or finding new or alternative markets. Belgium, for instance, has opened up existing financial instruments for SMEs – such as the SME growth subsidy – as to support firms to find alternative markets, particularly where supply chains are impacted. China is encouraging large enterprises to cooperate with SMEs, by increasing their support in supply chains, in terms of loan recovery, raw material supply, and project outsourcing.

Several countries have intensified export support measures for SMEs:

• Canada has expanded Export Development Canada’s ability to provide support to domestic businesses.

• The Czech Republic launched an emergency package for Czech exporters and other support to exporters.

• The Danish Export Credit Fund (EKF), a state agency that secures payments of exports of goods and services out for Denmark, will increase its liquidity for in particular SME’s. An increase guarantees will assist some 250 SMEs in continuous export business.

• Germany has set up an Economy Stabilisation Fund (Wirtschaftsstabilisierungsfonds), aiming to ring-fence businesses seen as of critical importance for the German economy as a whole.

• Indonesia tries to boost SME exports by virtual business match making events.

• Korea allocates KRW 36 trillion to trade finance. The government will extend the maturity of trade insurance and guarantees within a ceiling of KRW 30 trillion. Also emergency liquidity worth KRW 5 trillion is available to help local companies expand overseas activities.

• New Zealand and Slovenia offer aid for internationalisation and measures to diversify export- and import markets.

• Switzerland offers compensation for reduced exports promotion activities of CHF 4.5 million.

• To support export activity, the Italian export credit agency (SACE) has announced a EUR 4 billion package to help SMEs address cash flow needs and diversify export markets. In addition, the Italian Agency for the promotion of business internationalisation (ICE) has cancelled the costs already incurred by companies for participation in fairs and events, also proposing alternative visibility solutions.

• As part of its additional loan guarantee programme, Spain offers EUR 2 billion in guarantees to exporting companies.

• In South Africa, the Business Growth or Resilience Facility aims to enable continued participation of MSMEs in supply value-chains, in particular those who manufacture (locally) or supply various products that are in demand, emanating from the current shortages due to COVID-19 pandemic.

Measures to support teleworking and digitalisation

Many SMEs find it harder to adopt teleworking (Brussevich, Dabla-Norris and Khalid, 2020[71]), new sales channels and other digital solutions that may help mitigate the impact of the outbreak and containment measures. Several countries have introduced measures to support SMEs adopting teleworking (Argentina, France, Japan, Slovenia, Spain), which may also bring longer-term advantages in terms of adoption of technology and new practices. For instance, Argentina introduced a financing line of EUR 7.2 million for SMEs used exclusively for teleworking. Other countries have more generally intensified SME digitalisation support in the context of the crisis. In some countries, private initiatives have been also launched to support SMEs in this area. For instance, in France industry associations, support SMEs during the crisis through a toolkit on teleworking and advice to companies.

• The "Digital Team Austria" initiative consists of companies in the digitisation industry and offers digital services to SMEs free of charge for at least three months. This helps SMEs to switch to mobile working.

• Chile introduced a number of measures to support digitalisation and teleworking, such as SME Online, an initiative that seeks for SMEs to increase their sales, lower their costs and improve their relationship with customers and providers, using available digital technologies and training, changes to Labor Code for regulating teleworking, the development of teleworking / digitalization to connect affected SMEs with the main Chilean e-Commerce platforms and consumers.

• China has introduced measures to foster the adoption by enterprises of new technologies, business practices (e.g. unmanned retail, contactless delivery, standardized package of fresh food) and business models (e.g. online shopping, online medical care, online education, online office, online services, digital entertainment, and digital life). To accelerate the adoption of digital technologies, China supports SMEs cloud computing and purchase of cloud technology and for online working such as remote office, home office, video conferencing, online training, collaborative R&D and e-commerce.

• In Italy, the Ministry of Innovation and Digitalisations launched an initiative called “Digital Solidarity”. This includes a portal where companies (in particular SMEs and self-employed) can register to access without costs digital services from large private sector companies regarding smart/tele-working, video conferencing, access to mobile data, cloud computing etc., to enable them to cope with restrictions to movement and work.

• Ireland has extended its Digital Trading Online Voucher scheme by an additional EUR 3.3 million, by which micro-enterprises can get a EUR 2 500, and have expanded free online training to entrepreneurs.

• Japan offers subsidies to support – next to teleworking in SMEs - for firms to adopt IT solutions and develop e-commerce sales channels.

• Korea introduced measures to encouraging brick-and-mortar shops to open their business online;

• In Latvia and Mexico, Fintech initiatives are being developed to support SME finance in the context of the crisis.

• The Malaysia Digital Economy Corporation, set-up by the government as part of the country’s digital strategy, offers an extensive list of digital solutions for SMEs by Malaysian tech companies.

• Singapore’s SMEs Go Digital Programme provides support for businesses to digitally transform and expands the scope of pre-approved solutions eligible for the Productivity Solutions Grant to help businesses implement safe distancing and business continuity measures.

Spain has in the context of the crisis set up measures to help digitalise SMEs to facilitate teleworking, and prevent external (outside the EU) takeovers of Spanish firms in strategic sectors. It supports connected Industry 4.0 projects for SMEs. and has various programs in place to support SMEs and self-employed to rethink their business models and strengthen managerial and digital skills. Furthermore, the Acelera PYME programme aims to accelerate the use of digital technologies by SMEs.

Measures to support innovation

Similarly, countries offer support for innovation by SMEs. In some cases, these measures aim to support start-ups and SMEs to help find solutions to the COVID-19 outbreak. In other cases, support is offered to strengthen SME innovation and competitiveness, to help them better withstand the impact of the crisis. The COVID-19 pandemic is also triggering public sector innovation.90

• China encourages SMEs to engage in the innovation of technologies and products related to pandemic prevention and control.

• The Czech Republic launched the COVID Technology Program 19, a subsidy for projects directly linked to the fight against the further spread of coronavirus through the acquisition of new technological equipment and facilities, CZK 300 million in total. Furthermore, the Czech Rise Up Program aims to encourage the introduction of new solutions to fight the coronavirus crisis by supporting innovative companies, including start-ups, CZK 200 million in total.

• In Denmark, an Innobooster-programme administered by the Innovation Fund will be increased by DKK 350 million to support new projects.

• The European Institute for Technology launched a call to startups and SMEs with technologies and innovations able to help in treating, testing, monitoring or other aspects of the COVID-19 outbreak to apply for funding under the European Innovation Council Accelerator programme.

• The Finish, Latvian and Polish governments back hackathons among start-ups and SMEs to help find innovative solutions to the crisis.

• France introduced an accelerated payment of the PIA innovation support grants already allocated but not yet released, for an estimated total amount of EUR 250 million. Following a government request, Bpifrance and Ademe automatically accelerate the payment of innovation support grants from the PIA, such as innovation contests, by paying in advance the instalments not yet released for projects that have already been validated. Concurrently, for companies receiving subsidies in the form of repayment advances or grants accompanied by fees, the next repayment deadlines are postponed for up to six months. Furthermore, the State maintains, through Bpifrance, its support for innovative companies with nearly EUR 1.3 billion planned for 2020 (grants, repayable advances, loans, etc.). Bpifrance will also continue its direct equity investments and investments in fund of funds, alongside private investors.

• Enterprise Ireland and Údarás na Gaeltachta clients are eligible for grants for accessing consultancy services for immediate finance reviews, as well as for innovating, diversifying markets and supply chains. Local Enterprise Offices in Ireland are providing vouchers worth between EUR 2 500 and EUR 10 000 with match funding for innovation, productivity and business continuity preparedness.

• Israel introduced a NIS 650 million stimulus plan for the tech sector, via the Israeli Innovation Authority. NIS 50 million will be used for innovation for combatting the COVID-19. Furthermore a package of measures to boost “growth engines” once containment measures are eased was introduced, including the acceleration of public investment projects (NIS 1.1 billion), support for SMEs in the high-tech sector (NIS 1.5 billion), and further measures to boost economic activity (NIS 5 billion).

• Japan introduced subsidies to promote teleworking, online schooling and reshoring of factories.

• Norway introduced: grants for young growth companies, innovation loans, interest-payment support, grants for private innovation groups, business-oriented research support, capital for funding and matching investments.

• The existing Adapt and Grow initiative in Singapore increased its funding period to six months to better support SMEs during the crisis.

Measures to support training and redeployment

Several countries have opened up existing programmes for training and skills development by SMEs in the context of the outbreak, or launched new initiatives for this purpose. Enabling SMEs to maintain access to skills during the crisis, as well as develop further skills, constitutes an important aspect of the required structural policy response to the crisis.

• Australia is offering support for small business to retain their apprentices and trainees. Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage for up to 9 months from 1 January 2020 to 30 September 2020. Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice. This measure will support up to 70,000 small businesses, employing around 117,000 apprentices. Queensland offers mentoring support (50 mentors available) and financial workshops to support SMEs, with an emphasis on local business communities.

• China is using instruments for subsidising training for SMEs, and offers free access to online training platforms. Technical knowhow and management lessons will be offered to SMEs free of charge during the pandemic via mobile platforms. Online training is supported as well (Ping An Digital Economic Research Center, 2020[71]). In Hubei province, China, SMEs can receive a grant to hire new college graduates.

• Finland provides EUR 500 000 for counselling and support services for entrepreneurs.

• France asks companies to invest in training in return for partial unemployment and wage support.

• Germany announced a EUR 4 000 assistance for SMEs to cover consultancy services to help SMEs find solutions in coping with the crisis.

• Greece provides economic support in the form of a training voucher of EUR 600 for six scientific sectors (economists/accountants, engineers, lawyers, doctors, teachers and researchers).

• Ireland offers support for online trading of EUR 7.6 million and free mentoring, free online training for all businesses.

• New Zealand launched a NZD 100 million redeployment package. Furthermore, the government offers NZD 25 million in the next 12 months for business consultancy support.

• In Portugal, a special budget is set up to allow people who are out of a job to get training.

Measures to support start-ups

Start-ups are among the most affected SMEs (OECD, 2020[72]) (World Economic Forum, 2020[73]). Although many of the support programmes put in place to support SMEs are open to start-ups (and self-employed) as well, start-ups generally struggle or completely fail to meet the criteria set to access liquidity programmes announced in relation to the COVID-19 crisis. For instance, because start-ups in initial years may not make profits, they may fail to meet the solvency criterion underlying such schemes. In response, several countries have announced dedicated measures aimed at supporting start-ups (France, Germany, United Kingdom, see Table 6).

Various other countries have put in place measures to support start-ups as well. For instance, in the Netherlands, the government announced Corona bridge loans for start-ups and scale-ups of between EUR 50 000 and EUR 2 million, for which EUR 100 million will be available. Loans under EUR 500 000 should be available in 4 to 9 working days after request.91

In Switzerland, a special guarantee procedure was created to secure bank loans to qualified start-ups. 65% of the guarantee is paid by the federal government and 35% by the canton or third parties. In this way, the federal government and the canton (or third parties) jointly guarantee 100% of an amount of up to CHF 1 million per start-up company. The total amount guaranteed may not exceed one third of the start-up's 2019 running costs.92

Denmark is developing two loan schemes with subsidised interest rates for start-ups. The first scheme targets companies in their early stages, while the second scheme focuses on companies having already received venture capital. The schemes have a total budget of approximately EUR 296 million billion. The support, in the form of loans, will be managed by the Danish State public investment fund Vækstfonden.93

Italy introduced support to high-tech start-ups: the endowment of the main national subsidised finance programme for innovative start-ups is increased by EUR 100 million. EUR 10 million are allocated to incentivise start-ups to use services by business incubators and accelerators. The thresholds for the national investor visa scheme for foreign citizens financing SMEs and start-ups are halved. An additional tax credit for start-up equity investor is set up.

Portugal launched a EUR 25 million support initiative for start-ups, which includes five measures:94

• Financial support through an incentive. The value will be equivalent to minimum wage per employee (up to a maximum of 10 employees per start-up);

• Three month extension of the Start-up Voucher scheme (EUR 2 075 per entrepreneur job);

• Support for start-ups with less than five years of business activity, through the contracting of incubation services based on an incentive of EUR 1 500, non-refundable;

• A loan convertible into social capital (supplies), after 12 months, applying a discount rate that allows start-ups to avoid a dilution of investors’ equity. Average investment ticket between EUR 50 000 Euro and EUR 100 000 per start-up;

• Launch of the “Covid-19 — Portugal Ventures instrument”: for investments in start-ups, with tickets starting at EUR 50 000.

Austria set-up a EUR 150 million COVID-19 start-up Relief Fund, to fund innovative Austrian start-ups founded not more than 5 years ago. The initiative includes two parts:95

• An aid fund through the state-owned promotional bank AWS of EUR 100 million, which doubles fresh equity for Austrian start-ups

• A EUR 50 million venture capital fund.

Canada introduced a CAD 250 million support programme to assist innovative, early-stage companies that are unable to access existing COVID-19 business support, through the National Research Council of Canada’s Industrial Research Assistance Program. Furthermore, Canada launched CAD 20.1 million in support for Futurpreneur Canada to continue to support young entrepreneurs across Canada who are facing challenges due to COVID-19. The funding will allow Futurpreneur Canada to provide payment relief for its clients for up to 12 months.

Regional governments have also launched initiatives. For instance, Upper Austria is developing a EUR 4 million start-up package, which aims to stabilise start-up companies and support founders. This package currently consists of a special consulting service by the regional start-up consulting and support council "tech2b Inkubator" and a deferral of active start-up loans from "tech2b Inkubator". Start-ups can also benefit from the Region’s Corona guarantee. In Belgium, Flanders launched a EUR 250 million package for start-ups, scale-ups and SMEs. Under the scheme, viable companies affected by the COVID-19 outbreak are eligible for subordinated loans of up to EUR 800 000 over three years. The credits must fully cover the financing needs for at least 12 months. Companies pay an interest rate of 5%.

Temporary changes in insolvency and bankruptcy regimes

Several countries have introduced modified insolvency and bankruptcy regimes in response to the pandemic (see Box 5). The aim of these changes is to provide breathing space for companies running into financial difficulties during the pandemic and avoid their unnecessary bankruptcy.

Private sector initiatives and entrepreneurship

Over the last weeks, several private sector initiatives have been launched to harness the potential of entrepreneurship in the context of the crisis. Box 6 illustrates a number of examples.