INSME: 15 Lessons Learned on SME Support to “Build back better” in the Post Covid Era

( – by Giovanni Zazzerini, INSME –) SMEs have been particularly impacted by the pandemic, and one year later they stand in an even more perilous condition: in the US, between January 1^st and April 1^st 2020, the drop in revenue for SMEs averaged at between 40% and 50%; in Australia, small business sales declined by 15% between March and September 2020; Worldwide, 70-80% of SMEs experienced a serious drop in revenue or sales. Governments around the world quickly acted to put in place different policies aimed at containing

the catastrophic effects of the pandemic on SMEs and entrepreneurs. Such instruments were diverse in nature, varying from emergency measures to avoid short term liquidity concerns and job losses (such as job retention schemes, tax deferrals, debt payment moratoria, financial support etc., to structural measures able to support SMEs adapting to the changing business environment and build resilience: policies in support for innovation, sustainability, re and up-skilling of workers, etc.

The OECD Centre for Entrepreneurship, SMEs, Regions and Cities has identified in the paper 15 lessons learned¹ to help governments address ongoing challenges.

1. Ensure rapid delivery of SME and entrepreneurship policy support by simplifying access to support and ensuring effective digital delivery systems

Governments that have successfully delivered support measures to SMEs, have done so by lowering administrative thresholds for accessing aid in order to ensure their fast delivery, and could generally rely on a well-developed digital infrastructure. Transparency, fairness, together with the “need for speed”, are the most crucial factors for effective policies.

2. Policy interventions should strive to target viable enterprises that need them the most

Offering policy support with limited checks and broad criteria may have side effects, such as keeping unproductive and loss-making firms afloat. Providing aid to “zombie firms” hampers the process of creative destruction, and has negative effects on competition in the medium and long run.

3. Boost start-up rates, especially for innovative new ventures

Young firms have been heavily impacted by the pandemic and the start-up rate dropped on average in OECD countries. Recovery plans should focus on policies to boost innovative entrepreneurship and nurturing the start-up ecosystem. Measures should further stimulate early-stage equity finance and governments should reduce regulatory uncertainty simplifying administrative procedures, and adopting e-government processes thus reducing transaction costs for startups.

4. Ensure that support reaches vulnerable segments of SMEs and entrepreneurs

Female-led SMEs were seven percentage points more likely to close compared to male-led SMEs, and also minority business owners were hit by the crisis disproportionally: introducing specific schemes with a view to gender and racial disparities would ensure equal opportunities in recovering.

5. Rethink institutional arrangements regarding the self-employed

Typically, support measures do not take circumstances of self-employed into account: with the rise of the gig economy and the role of self-employment, measures enforcing their social security, health and taxation should be foreseen in the future.

6. Avoid SME over-indebtedness and an SME solvency crisis

Governments should avoid the over-indebtedness and solvency crisis of SMEs, which may struggle to repay debts: using equity and quasi-equity measures offers better prospects for beneficiaries to invest and grow. Grants, convertible loans, convertible bonds, equity crowdfunding are only some of the means to ease SMEs’ cash constraints other than debt.

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