Government Assisted Financing Schemes For Small Businesses

Published On : 02/02/2022

Covid-19 has exacted havoc and financial pain across the globe. Aside from poorer regions and countries where access to vaccines is limited, small businesses everywhere are also bearing an inordinate economic toll and hardship.

As governments across the world muster resources to cope with the impact of Covid-19 on livelihoods and healthcare, there have also been robust responses by many central governments to help small businesses cope with the pandemic.

Hit by waves after waves of enforced closures and furloughs, SMEs (small and medium enterprises) in certain sectors such as travel, events and food and beverages are the hardest hit. Even SMEs who are in industries that are better placed to cope with remote working might still find it stressful to cope with reduced aggregate demand, supply chain disruptions and constant Covid-19 regulatory changes.

SMEs form a critical segment of many economies, as they typically form the largest fraction of firms and employ a significant number of workers. Unfortunately, most SMEs also tend to be concentrated in front facing industries, such as F&B and retail. These industries are usually directly affected by many countries’ Covid-19 public health responses, such as enforced closures or social distancing measures.

Thankfully, many countries have rolled out much needed relief schemes and programmes to aid SMEs in distress to provide succour. Wage relief schemes, debt moratoriums and rental waivers are some solutions governments introduced to cushion the impact of Covid-19 for small businesses.

These aid and relief schemes differ from each country and the scope and extent of assistance provided as a percentage of GDP varies as well. A concern with the good intentions of such schemes would be the execution. The target recipients of such relief schemes are largely SMEs. However, the eligibility and accessibility to aid could be bogged down by bureaucracy and red tape.

Smaller firms tend to be less sophisticated than their larger counterparts and could face difficulties accessing and interpreting information on the various government relief grants and schemes available to them. It is imperative that any aid relief schemes rolled out should reach the intended recipients expeditiously sans red tape and hurdles. These schemes should not only benefit the largest of SMEs only, which are typically staffed with inhouse accountants, financial controllers and consultants.

Some of the more popular and effective aid relief schemes introduced by governments to help SMEs are government aided financing schemes. The Monetary Authority of Singapore and Enterprise Singapore (a statutory board) has made available  government assisted financing schemes with various features to help Singapore SMEs at different stages of their growth as well as to improve access to financing amid the pandemic. The basic purpose and mechanism of these loans are to encourage SME lending via government risk sharing with credit guarantees on a certain percentage of loans underwritten by participating financial institutions.

In Australia, the government has also rolled out similar government guarantee loan schemes for SMEs, such as the SME Recovery Loan Scheme. This provides for a 50% government guarantee on loans underwritten by participating lenders till June 2022.

These government assisted financing schemes provided a life buoy to eligible SMEs who are not as well capitalised as larger corporates. With easier access to credit and financing, these loan programmes helped SMEs with a buffer on temporary cash flow stress caused by Covid-19.

Together with the various other government funded support schemes, these policy tools helped SMEs weather the pandemic storm and prevented what could have been an even bigger economic disaster for SMEs in the absence of such aids and relief programmes.

Produced in Association with Craig Lebrau

Wanda Rich

Wanda Rich has been the Editor-in-Chief of Global Banking & Finance Review since 2011, playing a pivotal role in shaping the publication’s content and direction. Under her leadership, the magazine has expanded its global reach and established itself as a trusted source of information and analysis across various financial sectors. She is known for conducting exclusive interviews with industry leaders and oversees the Global Banking & Finance Awards, which recognize innovation and leadership in finance. In addition to Global Banking & Finance Review, Wanda also serves as editor for numerous other platforms, including Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.