COVID-19: Small business did it tough, did it well

Small businesses have shown amazing grit through the pandemic, but in two weeks’ time we find out which ones are actually going to survive it.

Small businesses were far more savagely battered by last year’s “lockdown response” to fighting the virus – especially the initial national lockdown – than big business and even the medium-sized ones that sit between them.

Maybe that’s obvious; it certainly should be.

With certain specific exceptions like Qantas aside, the profit reports from the big listed companies have largely varied from “not too much pain” to rather spectacular gain, like the two big retailers Harvey Norman and JB Hi-Fi.

For them and others it was almost a case of: virus, what virus? Lockdown, what lockdown? Even, lockdowns, plural, adding Premier Dan’s specially curated one for Victoria.

Small biz is concentrated in exactly those areas - as Reserve Bank assistant governor Christopher Kent pointed out, in an information-rich and important speech Wednesday – such as “cafes, restaurants, arts and recreation” most directly targeted by the lockdowns.

Judged on both his and other data, it might appear that the small biz sector – obviously I’m talking of the group; many especially small businesses would still be battered or have even been destroyed - has now largely come through it all, along with the bigger businesses.

As Kent detailed, over 200,000 SME borrowers arranged to defer their loan payments last year. This peaked in June at 13 per cent of all SME loans. Now, it’s down to just 1 per cent, Kent said.

I would add that the fact that payments on 87 per cent of SME loans were NOT deferred was, yes, very encouraging, but also a great sign of the resilience and indeed financial prudence of SMEs.

But it does not, again in my view, indicate they were sailing through unscathed. Similarly with the fact that they’ve (almost) all resumed payments.

The big thing to watch – apart from any return to the conditions of 2020 – is what happens now that the policy help starts to be wound back or phased out completely. Kent concluded that “business failures are expected to rise”.

The first one and indeed the biggest is of course JobKeeper, at the end of the month.

There are still over 1 million workers – out of 10 million employed across Australia, including all those in the federal and state public services - still getting JobKeeper. In two weeks, they and the businesses that employ them are on their own.

I would suggest that assorted estimates of how many are headed for unemployment – 200,000 and even just 100,000 – are more on the optimistic than pessimistic side. We are going to very quickly find out if they are realistic.

We also have to see how the bigger and more permanent issues of small biz access to – and it really does have to be - bank finance, play out in this post-lockdown reality.

Broadly, both the federal government and the RBA dramatically stepped up – and intelligently targeted – help to SMEs.

But even so, on Kent’s data, SMEs were still somewhat disadvantaged as opposed to big biz – and the ‘S’ disadvantaged against the ‘M’; as indeed they have been all the way through the 2010s since the GFC.

The basic fact remains that if you are a ‘S’ biz, it helps to have a house to borrow against: half of all ‘S’ biz loans are secured against residential property.

Yes, all sorts of new forms of lending to small biz have grown rapidly in recent years but the sums are trivial in the big picture.

Further, while everyone is getting their bank loans at much lower interest rates, SMEs still pay on average about 2 percentage points more than big biz. Indeed, in absolute terms, the SME rate is around double rates paid by big biz.

Pre-GFC , the gap and even more the margin were both much smaller.

Originally published as COVID-19: Small business did it tough, did it well