A quarter of smaller firms could fail as the pandemic evolves, according to a Central Bank survey. Over 70pc of small and medium-sized firms (SMEs) – with 250 employees or less – experienced some fall in turnover in 2020.

Hotels and restaurants bore the brunt of the downturn, while the wholesale trade and business services sectors were least affected, according to the research, conducted jointly with the Economic and Social Research Institute.

An average of 40pc of firms cut spending to deal with the pandemic, with expenditure dropping by 8.5pc. Over 30pc of businesses made losses, while a further 30pc broke even.

“These figures suggest that, while companies have indeed managed to adjust to the realities of the pandemic, this adjustment for many reasons has not been enough to avoid companies experiencing losses,” Central Bank Governor Gabriel Makhlouf told the conference. “While policy choices have led to an avoidance of widespread insolvency up to now, it is an unfortunate reality that the effects of the pandemic on SME balance sheets, combined with structural changes that have either been created or exacerbated by it, mean that some SMEs will be unviable.”

The most likely firms to fail once economic supports begin to be withdrawn are those that were loss-making, struggling or breaking even in 2019 and 2020, the Bank said.

According to the survey, 5.4pc of SMEs were loss-making in 2019 were still “struggling” in 2020. And 19pc that were struggling in 2020 were merely breaking even in 2019. A further 42pc of SMEs that were profitable in 2019 and struggling in 2020 should have “better prospects of trading back to viability” once the economy reopens, the Bank said.

“It would be a mistake to continue with protection and forbearance in perpetuity, just as it would be wrong to allow all companies making losses currently to fail,” said Mr Makhlouf. The minister for finance, Paschal Donohoe, said there would be no “cliff edge” for economic supports, but that Ireland should not become a “fiscal outlier” in the EU.

“It’s a cautious approach and one that will continue until a substantial level of vaccination has been achieved,” Mr Donohoe said. “Once the public health situation allows, supports will be unwound in an appropriate and incremental way. There will be no cliff-edge in the removal of support. Supports will continue for as long as is necessary to ensure a strong recovery.”

The survey found that around 61pc of SMEs received wage subsidies during the pandemic, 20pc used tax warehousing while fewer than 6pc of firms used lending initiatives.

Irish Independent, April 2021