Navigating the Crisis: Think small first to build back better

A deserted outside seating area of a bar in Soho during the COVID-19 pandemic in London, United Kingdom, 19 September 2020. Banner image: Shutterstock/Patrick Shutterstock
Navigating the Crisis: Think small first to build back better

This article is part of a series in which OECD experts and thought leaders  from around the world and all parts of society  address the COVID-19 crisis, discussing and developing solutions now and for the future.

To keep updated on all of the OECD's work supporting the fight against COVID-19, visit our Digital Content Hub.

Last year, entrepreneurs and small business owners found themselves in unchartered waters. Faced with unprecedented restrictions on their activity, the pandemic forced many to close their businesses, and turn to governments for support for the first time. Early hopes of a swift recovery after lockdowns were lifted quickly proved to be a false dawn when the pandemic returned in further waves. 

Some small and medium-sized enterprises (SMEs) and entrepreneurs were able to adapt and seize new opportunities, such as the James Corbett Studio, a hairdresser in New York that moved to video call consultations and home delivery of customised colour kits, or new start-ups such as TeamBuilding, which offers virtual team building events. But for most, renewed closures were a bitter blow that sapped the mental strength and resilience of those that had fought so hard to adapt and survive. Those that were able to continue trading suffered significant losses. Among SMEs that remained open from May to December 2020, between 55% and 70% saw revenues fall, with two thirds dropping more than 40%[1]. Many now face an uncertain future, burdened with mounting debts.

Policy makers have worked hard to help them find a route through the crisis. To do so, they had to be bold, act fast and take risks to save lives and livelihoods. In supporting businesses, their most pressing task was to avoid an acute liquidity crisis by providing financial and wage support and tax deferrals to entrepreneurs. The scale of support provided was unprecedented. In most OECD countries, 2020 saw between 20% and 40% of SMEs receive government support in one form or another[2]. In developing their response, policy makers had to learn by doing, adapting and improving their approach over time to ensure that aid reached those that needed it most, including the self-employed who often found it hard to access government support. As the crisis evolved, they learned from other countries, too, adopting common instruments to support firms.

In our latest policy briefing One year of SME and entrepreneurship policy responses to COVID-19: Lessons learned to build back better, and our recent OECD SME and Entrepreneurship Outlook 2021, we map the progress to date and the key lessons countries have learned one year on.

Visit the OECD's COVID-19 Hub to browse hundreds of policy responses

Visit the OECD's COVID-19 Hub

One key lesson is that the emergency support measures have been critical to business survival. Support to date has helped avoid a massive rise in bankruptcies. Firm bankruptcies were actually lower in 2020 and early 2021 than in 2019 in almost all countries for which we have data [3]. It will be important not to jeopardise that success through a sudden withdrawal of emergency measures, especially where trading restrictions remain and the situation remains desperate for many small firms. Moreover, when the situation allows, they will need to be withdrawn in a careful and controlled way. Governments therefore need to provide roadmaps that allow for a gradual phasing out of support measures.

These roadmaps also need to find ways of relieving firms of accumulated debts that threaten to turn the liquidity crisis into a solvency crisis. The scale of that challenge is huge. The Bank of France estimated that SME debt had increased by more than 20% in 2020 to EUR 524 billion. In the United Kingdom, in the year to March 2021 SME debt grew by 26%.To tackle this, governments should explore the potential to restructure existing SME debts. In March 2021, Spain introduced a EUR 11 billion economic relief package to provide solvency support to SMEs and the self-employed through subsidies, cost reductions and capital reinforcement. Many countries are also exploring greater use of equity support and convertible loans as well as more unconventional means, such as cash-against-tax-surcharge schemes where loans are repaid through higher taxes on profits once the company recovers.

More on the Forum Network: Rescuing SMEs from the COVID storm: What’s next? by Lamia Kamal-Chaoui, Director, Centre for Entrepreneurship, OECD

Rescuing SMEs from the COVID storm: What’s next? by Lamia Kamal-Chaoui, Director, Centre for Entrepreneurship, OECDMore on the Forum Network: Rescuing SMEs from the COVID storm: What’s next? by Lamia Kamal-Chaoui, Director, Centre for Entrepreneurship, OECD

As well as support for liquidity, small business owners and entrepreneurs need to be helped to adapt and renew. This includes measures to rebuild their confidence and resilience. It also includes support to start up and start again. Many countries are boosting support to new start-ups and scale-ups to help them lead the way to recovery. For instance, France has already launched a EUR 4 billion support package for start-ups, as well as innovative equity support through BpiFrance.

Finally, we need to take the opportunity to address long-term structural challenges. We need ambitious stimulus and recovery packages that promote sustainability, digitalisation, innovation and skills, such as Germany’s Fighting Corona, securing prosperity, strengthening sustainability strategy and Korea’s Digital and Green New Deal. In designing them, it will be important to ensure that these packages—and the measures that underpin them—work with and for SMEs if they are to play a full role in building back better.

The crisis is not yet over. Businesses—and policy makers—remain in troubled waters, even if vaccinations offer the promise of brighter skies ahead. We will need the experience and evidence we have gathered throughout this pandemic as a guide to navigate the next phase, find ways to live with the virus and potential new variants and to look ahead to the recovery. Our forthcoming SME and Entrepreneurship Strategy will help us do just that, providing guiding principles and operational tools to support SMEs and entrepreneurs to survive and thrive in the journey ahead. 

[1], [2] OECD SME and Entrepreneurship Outlook 2021 (2021), based on the Facebook/ OECD/ World Bank Future of Business Survey.
[3] OECD SME and Entrepreneurship Outlook 2021 (forthcoming), based on OECD Timely Entrepreneurship Indicators.

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