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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. This post is also available in the OECD Forum Network.

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

A year ago, 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 second and third 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. In Canada, as of March 2021 35% of small businesses remain closed. In the United States, the number of small businesses that were open was 33.6% lower in January 2021 compared to January 2020. And in Mexico, in December 2020 more than 1 million small and medium-sized businesses had closed permanently since the middle of that year, representing 20.8% of SMEs. 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, providing financial and wage support and tax deferrals to entrepreneurs. The scale of support provided was unprecedented. For example, in the first half of 2020, emergency relief measures reached 70% of small businesses in the United States. In the United Kingdom, among other support mechanisms in November the Government provided GBP 2.2 billion in relief on business rates (a property tax) to companies in the retail, leisure and hospitality sectors. 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, we map the progress to date and the key lessons countries have learnt one year on.

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, and it will be important not to jeopardise that success through a sudden withdrawal of emergency measures, especially when 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.

Those roadmaps also need to find ways of relieving firms of accumulated debts that threaten to turn the liquidity crisis into a solvency crisis. A survey among SMEs in the United Kingdom, released in February 2021, shows that 63% of SMEs are expected to be unable to repay COVID-19 support loans, and may be left with an additional GBP 173,000 of debt on average. 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 that are extended are repaid through higher taxes on profits once the company recovers.

As well as support for liquidity, small business owners and entrepreneurs need support 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 of, and Korea’s Digital and Green New Deal. However, 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 over the last year of 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.

Author profile

As a key member of the OECD Senior Management team, Ms. Kamal-Chaoui supports the Secretary-General in achieving the OECD’s mission to advance economic growth and social progress as well as contributing to other global agendas such as the G20, the Paris Agreement on Climate Change and the implementation of the United Nations Sustainable Development Goals.

Ms. Kamal-Chaoui has held several senior positions at the OECD since 1998. From 2012 to 2016, she served as Senior Advisor to the OECD Secretary-General. In this role, she supported the Secretary-General’s strategic agenda and led the OECD Inclusive Growth initiative, the Knowledge-Sharing Alliance programme, the development of the Global Deal and the implementation of the OECD Strategy on Development. From 2003 to 2012, she was Head of the Urban Programme in the Directorate for Public Governance and Territorial Development. She has also previously worked in the Trade Directorate and the Directorate for Financial and Enterprise Affairs. Before joining the OECD, Ms. Kamal-Chaoui worked for a university-based research institute as well as several media outlets.