Impact of Covid-19 on Small and Medium Enterprises: Strategies and Government Support

This essay discusses the impact of Covid-19 on Small and Medium Enterprises (SMEs) and the strategies they can adopt to cope with the pandemic. It also highlights the role of the UK government in supporting SMEs during the pandemic.

Circular Flow of Income
Individual Essay

Table of Contents
MAIN BODY..................................................................................................................................1
REFERENCES................................................................................................................................6

MAIN BODY
Covid – 19 being a global pandemic adversely affected the whole world which included
individuals, small businesses, medium businesses and even large businesses. The pandemic
literally disrupted the functioning of the organizations and caused many of them to shut down
permanently (Calabrese, Cowling and Liu, 2022). The most severe impact of the pandemic can
be seen on Small and Medium sized enterprises known as SMEs. This is a serious concern as it
can be seen that at the start of 2021, contribution of SMEs towards employment was 60.6% and
thus the resultant effect of global pandemic will automatically have a drastic and concerning
effect on the employment it was generating pre-pandemic.
Now, internal environment of any entity will be adversely affected due to the global
pandemic and it is bound to face various challenges during such pandemic. A survey by Market
Finance said that almost 69% of SMEs has been experiencing the major cash flow problems and
more than one third of such SMEs feared that they would not last (Roper and Turner, 2020).
Another issue faced by the SMEs was that the earnings of its employees dropped significantly
and especially for those in smaller firms as compared to those of larger firms. Also, the
employees who are younger were the ones who lost more than the older employees. Such
situation of pandemic made workers with low income, minority business owners less educated
business owners more vulnerable as compared to other in this crisis. It is to be noted that in case
of SMEs, earnings of employees lost the most i.e., almost -7% change in the earnings when
compared to employees of bigger enterprises than the SMEs.
Pre – pandemic, 80% of the SMEs showed stable or increasing revenue but during the
pandemic such 80% of the SMEs are concerned and says that their revenues are falling along
with loan defaults in one of four SMEs, their inability to retain the employees and sustenance of
their supply chains and the need of reduction of headcount during and post pandemic and
postponement of growth projects (Zutshi and et.al., 2021). According to a survey, for April 2021,
60% of SMEs believed that they will be out of business in no time. Last two years also showed
dismal levels of demand from the customers thereby affecting the revenue of the SMEs resulting
into stuck supply chains specially in the customer facing sectors like arts & recreation, food
sector, accommodation sector, etc.
Another challenge that impacted the internal environment of the SMEs is their
functionality which was totally disrupted due to the elongated worldwide lockdowns, social
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distancing methods and applications, movement being totally restricted of people and goods in
and across the nation, etc. To cope with this many businesses changed their model and many shut
down their businesses for good. One of the major challenges posed by the pandemic on SMEs
was financial difficulties i.e., arrangement of funds to meet their daily cash flow needs banks
were reluctant to advance funds to such small and medium businesses and thus they have to rely
on their revenues and savings which were already taking a direct hit because of such pandemic.
Naturally, the competitors will be affected by the pandemic in the same way as the entities
themselves are experiencing.
All the businesses in the market are affected, some are affected comparatively in more
adversarial form than others. SMEs working in the pandemic providing essential services also
faced major challenges regarding the health and safety of their employees and personnel. The
SMEs needed to maintain measures of safety and control of infection during the pandemic while
functioning and operating. Such measures were altogether made more tedious in the light of
acute shortages of PPE kits and other safety equipment.
External environment of any entity whether it is small, medium or even larger enterprises
will include the factors which are not under the control of the entity and external to the entity like
political factors, economical factors, social factors, technological factors, legal factors and
environmental factors (Papadopoulos, Baltas and Balta, 2020). Now the strategies for interacting
with these factors will require the SMEs to be innovative and creative. Such innovation and
creativity will be requiring handling of technological changes, recurring crises, measures to
support environment and surroundings, measures to support the people and society around the
entity, etc.
Regarding the technological factors and environment of the entity the SMEs needed to
devise the measures and ways to reach the customers while avoiding the physical contact and
maintaining the protocols of lockdown i.e., in the form of digital platforms to offer its products
and services (Prasanna and et.al., 2019). These measures included contactless deliveries of
essential items on the door step of the customers by taking orders online through any digital
platform, conducting of classes for the students online through video conferencing, conducting of
exams online, digital marketing, digital platforms, etc. Such a development of the digital
platforms may open up new array of opportunities for the SMEs both during the pandemic and
even after the pandemic.
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Regarding the political factors, the SMEs needed to follow the regulations and protocols
implemented by the government but being small and medium enterprises, the factor of flexibility
was always present and such flexibility shall be taken advantage of grab on the opportunities
even in the tough times of pandemic to get the first mover advantage and to tackle the threats that
may shower on the SMEs out of nowhere.
Regarding the social factors which includes the society and community in and around
which it functions and operates. Now in the crucial times of Covid – 19, the strategies showed
the enterprises interacting with the local community and society in and around it. Such
interaction included working for the local communities in the form of providing jobs in the local
communities, operating for the medical and personal welfare of the local community, etc. The
purpose of the business shall be working jointly to keep the community and the entity running
and build trust.
Regarding the economic factors of the SMEs it shall be noted that various SMEs were
forced to operate in the pandemic below its normal capacity thus exposing them to tremendous
amount of financial pressure but the SMEs needed to operate still as SMEs accounts for a major
proportion of employment opportunities (Innovation practices for survival of small and medium
enterprises (SMEs) in the COVID-19 times: the role of external support. 2022.). These will also
face issues like lack of financial liquidity, trade credit not accessible, risk of becoming bankrupt,
employees being laid off, etc. Now, strategies for such issues will include claiming of varied
stimuli packages which will include financial support of different types which will result in
prevention of losses of employment and liquidity crunches. European government also allowed
various reliefs like sick leaves, reduced working hours, various wage support schemes, etc.
Therefore, the above external factors like political factors, economical factors, social
factors, technological factors, legal factors and environmental factors need to be considered and
appropriate strategies need to be devised for the interaction to cope up with the adversarial
effects of the Covid – 19 pandemics by utilizing the internal strengths and weaknesses of the
SMEs to grab on the external opportunities and safeguard from the external threats (Akpan,
Udoh and Adebisi, 2022). Such interaction is necessary to cope up with the challenges exposed
by such factors and therefore, to devise the strategies like building digital platforms, opting
online working framework, follow protocols implemented by the government, operate
collectively with society and local community, etc.
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UK government played a significant role in supporting the SMEs during the Covid – 19
and such role can be understood as follows. The first and foremost response of the government
was towards the dealing of the health risk. Department for International Trade and UK Export
Finance facilities were also in immediate action. Interest rates were lowered by the Bank of
England to 0.25% on 11th March. Central Bank funded cheap business loans of around GBP 100
billion of SMEs (Collier and Mayer, 2020). Banks which increase lending to SMEs will be able
to avail additional funding with an aim to reduce the bank rate. Small and medium enterprises’
Term Funding Scheme was also extended.
An emergency stimulus package of GBP 30 billion was announced by the UK
government on 11th March out of which GBP 7 billion was aimed at business support. The
package included refunds on any sick pay to the employees of businesses which employed less
than 250 people in the first two weeks, the business rates of small businesses will be entirely
scrapped for 2020 and GBP 1.2 million of ‘interruption loan’ was set up by the UK government
for covid affected small and medium enterprises.
A rescue package of loan guarantees for business was announced by the UK government
of GBP 330 billion on 17th March. The package included scheme launched by Bank of England
to support liquidity by way of loans to bridge the disruptions by the corona virus, Coronavirus
Business Interruption Loan (CBIL) Scheme limit of loan borrowing increased from GBP 1.2
million to GBP 5 million and access to finance free of interest in the first six months. Operated
by British Business Bank offers guarantee of 80% without any fee and term of finance up to 6
years (Helping businesses along the right road? The effects of the UK government’s pandemic
support schemes on small businesses. 2022.). Any additional financial support as is necessary
will be provided as per the new legal powers in the Covid Bill by the government. Business rates
support of GBP 20 billion to the most affected entities in assisting them to manage their cash
flows by allowing 100% business rates holiday in the field of leisure, retail and hospitality for
the next 12 months, increment in the grants for Small Business Rate Relief to small businesses
form GBP 3,000 to GBP 10,000 and additional grant of GBP 25,000 to leisure, retail and
hospitality business working in small premises.
Waiver of annual interest of 3.5% on later tax payments for small companies who are
unable to pay the liability of the tax bill. Payments of VAT of the 2nd quarter of 2020 deferred to
the end of the financial year which will cost the government around GBP 30 billion (Chiu,
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Kokkinis and Miglionico, 2021). Loosening of rules by the Competition authorities regarding
distribution depots and data sharing. Allowing the companies to claim costs of sick pay paid to
employees of 14 days per employees which will amount to the aggregate of GBP 200. Grants of
worth GBP 10,000 will be available to the smallest companies and initial guarantees of GBP 330
billion of loan to provide support to the business.
As the small and medium enterprises (SMEs) accounted for 99.9% of the total businesses
in the Uk, accounted for more than 50% of the total revenues and employment of above 60% in
the private sector, the government of UK prioritized these small businesses as the key element of
the strategy of recovery of the economy (Crescenzi and Gagliardi, 2018). Thus such
prioritization led to reduction in the business rates and extension of schemes of recovery loans of
the government as discussed above and also a scheme named Help to Grow in which GBP 520
million was announced for the boosting of productivity of the small businesses.
Government also announced temporary amendments in the laws of insolvency of the
entities on 28th March to allow the companies a breathing space. In this, a new regime called
‘business rescue moratorium’ is being implemented with objectives of preventing creditors from
opting enforcement action when the business is in rescuing or restructuring stage and granting
the permission to the businesses to continue to trade and have access to supply of goods and
services.
On 20th April, a support package of GBP 1.25 billion was announced by the government
for tech corporates, start – ups and others which included investment fund of GBP 500 million
for companies with high growth and support of GBP 750 million for research and development
intensive firms.
Therefore, we can say that the schemes and assistances of the government above are helping
to influence the behaviour of the organisations and the work forces working in such
organisations. Both the well-being of the employees as well as the intentions regarding
investment are being considered. Such well-being and the investment intention indicates the
productivity in the future of the organisations.
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REFERENCES
Books and Journals
Calabrese, R., Cowling, M. and Liu, W., 2022. Understanding the dynamics of UK Covid‐19
SME financing. British Journal of Management. 33(2). pp.657-677.
Roper, S. and Turner, J., 2020. R&D and innovation after COVID-19: What can we expect? A
review of prior research and data trends after the great financial crisis. International
Small Business Journal. 38(6). pp.504-514.
Prasanna, R. P. I. R. and et.al., 2019. Sustainability of SMEs in the competition: A systemic
review on technological challenges and SME performance. Journal of Open Innovation:
Technology, Market, and Complexity. 5(4). p.100.
Zutshi, A. and et.al., 2021. From challenges to creativity: enhancing SMEs’ resilience in the
context of COVID-19. Sustainability. 13(12). p.6542.
Papadopoulos, T., Baltas, K. N. and Balta, M. E., 2020. The use of digital technologies by small
and medium enterprises during COVID-19: Implications for theory and
practice. International Journal of Information Management. 55. p.102192.
Collier, P. and Mayer, C., 2020. Reforming the UK financial system to promote regional
development in post-COVID Britain. Oxford Review of Economic
Policy. 36(Supplement_1). pp. S270-S280.
Chiu, I. H. Y., Kokkinis, A. and Miglionico, A., 2021. Addressing the challenges of post-
pandemic debt management in the consumer and SME sectors: A proposal for the roles of
UK financial regulators. Journal of Banking Regulation. pp.1-19.
Akpan, I. J., Udoh, E. A. P. and Adebisi, B., 2022. Small business awareness and adoption of
state-of-the-art technologies in emerging and developing markets, and lessons from the
COVID-19 pandemic. Journal of Small Business & Entrepreneurship. 34(2). pp.123-140.
Crescenzi, R. and Gagliardi, L., 2018. The innovative performance of firms in heterogeneous
environments: The interplay between external knowledge and internal absorptive
capacities. Research Policy. 47(4). pp.782-795.
Online
Helping businesses along the right road? The effects of the UK government’s pandemic support
schemes on small businesses. 2022. [Online]. Available through: <
https://www.bennettinstitute.cam.ac.uk/blog/government-support-smes/ >
Innovation practices for survival of small and medium enterprises (SMEs) in the COVID-19
times: the role of external support. 2022. [Online]. Available through: <
https://innovation-entrepreneurship.springeropen.com/articles/10.1186/s13731-021-
00156-6 >
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