Insolvency Cliff Stalks Locked Down Small Businesses
(27 July 2021 – Australia) Although predictions of significant business failures did not materialise in Australia in 2020 thanks to successful wide scale fiscal stimulus, how long can small businesses withstand repeated lock downs and uncertainty towards how long the fraught vaccine roll out will take?
As the COVID-19 pandemic took hold in late Q1 2020, economists forecast thousands of small to medium sized enterprises (SMEs) would collapse once the “insolvency cliff” was reached in Q3 2020. This was predicted following the end of targeted fiscal support in the form of the A$100 billion JobKeeper program, JobSeeker and A$300 billion in wholesale funding extended to lenders to avoid as Global Financial Crisis (GFC) style liquidity squeeze.
Surprisingly business insolvencies have declined by 50 percent with all enterprises that entered into loan deferrals with their lender now back on track for the most part with the exception of hard hit industries such as tourism, entertainment and tertiary education. Unemployment is sub five percent and many employers are finding the biggest impediment to their recovery is the inability to find workers due to closed international and state borders.
“With Victoria now in lockdown number five and NSW about to experience what Victoria went through in 2020, this time the insolvency cliff is less likely to be able to be averted. While the removal of JobKeeper and other assistance measures didn’t result in the expected tsunami of business closures, it doesn’t mean we can be assured of a similar outcome this time around” stated theBankDoctor.org Chief Doctor and founder, Neil Slonim.
“Admittedly there are some that are doing well but for thousands of punch drunk business owners, the financial and mental health toll is becoming intolerable and is compounded by a sense of pessimism as to how and when this nightmare will end. There is only so much they can bare. Yet amid all this doom and gloom lies a glimmer of hope. It doesn’t come from governments, as it has previously, or even small business themselves, who have been forced to engineer new business models seemingly overnight in order to stay afloat” Mr Slonim added.