In 2022, many SMEs are experiencing insurmountable business difficulties. One thing we all know about running a business is that it must continue to grow, bring benefits, and move steadily forward in order to gain a foothold in the market and make a profit. However, with the spread of the new crown epidemic, many SMEs are limited by the industry they operate in and are unable to open for business, gain access to customers, or trade. Even if they are able to open, most of them are only able to work from home and are unable to reach more customers. As a result, most SMEs are facing shortage of capital, failure to deliver orders, failure to sell products, and poor survival environment. Many SMEs have been unable to cope with these difficulties and have gone into closure and bankruptcy. Even for those SMEs that have managed to survive until now, some of them are already on the verge of closure.
In order to cope with the operational difficulties, many SMEs have adopted different approaches, such as NET 30 payment terms for small business. However, if you are interested in this phenomenon, the following article will tell you in detail several business dilemmas faced by SMEs in the current situation, as well as some of the policies adopted by the government to help SMEs out of their difficulties.
Difficulties Faced By Small and Medium-sized Enterprises
Rising raw material prices: Since the beginning of 2021, the global economy has been in a downward trend due to the epidemic. This has directly led to an important economic crisis, namely the increase in the prices of a large number of raw materials. In several of the world’s most important raw material exporting countries, raw material prices have risen by an average of 20 percent. The occurrence of war is also one of the factors behind the increase in raw material prices. For companies whose main business is production, this has put a lot of pressure on costs.
Shortage of funds: In 2022, overall lending rates for SMEs have risen and so has the interest rate. However, as most companies are not doing well, they have to resort to loans to keep their businesses running but are unable to repay them, which indirectly destroys their cash flow and causes them to run short of funds. And in this situation, SMEs are closing down one after another.
Even if they can survive, the salary of employees is a big problem for them. Due to the relatively tight capital chain and the epidemic, many SMEs had difficulties in paying their salaries in time or even postponed the payment of salaries. This has caused dissatisfaction among many employees, and work stoppages, or semi-work stoppages, have occurred in many areas.
Insufficient liquidity: As stated above, for SMEs, it is the lack of liquidity that is the most fatal problem. As the business operation progresses, the cash flow pressure will become more and more intense. And the lack of employee benefits due to the new crown epidemic has resulted in many businesses needing more and more capital to operate. This is a difficult dilemma to solve.
How The Government Can Help SMEs Out Of A Difficult Situation
With the epidemic spreading and the economy in recession, the government is taking several steps to help SMEs.
Emergency loans: The government may be able to provide some emergency loans to help some affected businesses. For example, the government may provide short-term funds to SMEs to help ease their financial difficulties and encourage them to pay their bills. These loans would be financed by national banks. The government can also implement specific incentives to help SMEs and avoid paying bills or repayment payments, including direct or non-direct payments) and risky loans (such as unsecured loans) that exist in secured loans (such as credit or mortgage loans, etc.). However, whether these contingency loans will be provided to businesses is dependent on whether the bank considers the business to have the ability to repay. If these businesses do not have the funds or cannot afford to pay their bills for higher reasons, they may be turned away by the bank and denied access to emergency loans.
Corporate tax relief: Currently, most governments have committed to a program that provides tax relief, as well as cash incentives, to businesses affected by the new crown outbreak. For SMEs, they can reduce the taxes they would otherwise have to pay until their revenues are restored. This can help businesses get out of a cash shortage, allowing them to maintain their basic income and keep their business running. If a business uses this cash for business, 75% is still available for expenses. In addition, the government will also provide businesses with security deposits, cash reimbursements and insurance reimbursements. Businesses will be able to invest and operate their businesses more prudently with the help of these.
Unemployment benefits: When companies do not have enough cash flow to pay their employees, they will fire unnecessary employees. This leads to the creation of a large number of unemployed people, as well as the creation of a large amount of unemployment insurance. However, unemployment insurance systems in many countries have become very expensive. In such cases, the government can provide companies with a lump sum compensation to help unemployed employees. In addition, the government can also provide financial assistance to businesses affected by the epidemic. In addition to government assistance, the government also provides affected businesses with the necessary expenses (including taxes, operating and capital expenditures) to keep them afloat and cope with the unemployment crisis. Such assistance also includes unemployment insurance assistance programs, among others.
These are the business difficulties faced by SMEs in 2022, and the measures that the government can take to help companies and their employees out of these difficulties. Although these difficulties are difficult for SMEs to solve, with strong perseverance, sound business plans, and government assistance, they will be able to thrive after the epidemic is over and explore new business opportunities to gain more market share and profits. The epidemic is not only a crisis for companies, but also an opportunity for them to make new reforms.