Catherine Murphy (Kildare North, Social Democrats) | Oireachtas source

I also wish the Tánaiste well with his new Ministry. It will be one of the very important offices if we are to stabilise the level of unemployment and grow in a different way that is more sustainable for our environment, the well-being of people employed here and the businesses themselves.

The small-to-medium business sector is a huge employer. If we are to avoid high levels of unemployment after the Covid pandemic, it is essential that supports are put in place to retain as large a number of people as possible in employment. Some sectors have been later to reopen and the lockdown has had a more extreme impact on some areas. There will have to be a targeted approach with some of the supports put in place. Some businesses exist on very tight margins. Taking on debt will be the difference between businesses surviving or not. Vibrant towns and villages require a small-to-medium sized sector not only to survive but also to thrive. Digital platforms for the sale of goods and services were rolled out during the crisis and are very welcome but shops, cafés and restaurants add to the vibrancy of our towns, as well as collecting and contributing vital taxes to run our public services. Nor is it only the businesses themselves at stake, but also their suppliers when it comes to job protection.

The nature of the SME sector varies and includes very many employees. Investment in the sector must be used to ensure that there is a job-rich recovery, and quality employment should be at the heart of the investment package. Figures published last week show that 80% of income tax is being collected, with some €650 million, or 2%, being warehoused. Particularly in the case of companies that do not survive, there may be tax revenue that is not paid over, in which case it is essential that those from whom the deductions have been taken do not lose their entitlements. Better paid workers pay more tax. Our aim should not only be to recover but to ensure that the recovery can deliver well-paid and secure jobs.

The additional money being provided through the microfinance fund is welcome. The interest rate is key for those availing of the fund. There are two levels, with a zero rate for a period, which may be the difference between people taking on debt or not. We need to examine how it matches against some of our European counterparts. What we do now is important in avoiding, as much as possible, the cost of creating new jobs, including training, supporting people on social welfare with the ancillary costs of medical cards, housing assistance payments and other supports. Young people will be disproportionately impacted. With the safety valve of emigration absent, they could pay a very high price. It is important that they are front and centre when it comes to the recovery. For some firms, including sole traders, taking on more debt is not an option. They will require support in other ways. I am thinking of the sound engineer who contacted me. He had a very viable income built up over many years but losing big events has meant that when he returns to work, it will be very gradual. I also think of the tour operator who specialised in bands, etc., coming here and who delivered significantly to the local economy. We want those types of business to return but they will have to be warehoused for a time because they will not be viable. There is a great variety among those affected.

Last week, the Special Committee on Covid-19 Response heard from representatives of the small-to-medium sector. They were highly critical of landlords who are seeking the full rent for the entire period of the lockdown. They were also very critical of utility companies. It is not all about the State. Some of the burden must be shared. It would be awful to see firms borrowing to pay a vulture fund, for instance, which might have no interest in sustaining our economy but only in putting its shareholders front and centre. How this fund is used will be important. There is no balance when a utility company can cut off a business. Pressure must be put on these companies to bring about some level of sharing the burden.

The recovery must be fair and also reduce the damage to the environment. I hope that the green new deal will support this.

I have looked at the profile of the microfinance fund which was introduced in 2012. It provides for an increase in the ceiling of Exchequer funding to Microfinance Ireland. That is welcome and the Social Democrats will support that. The Bill also provides that borrowing can come from other lenders but there may be different interest rates, depending on the source of the money. Firm with between one and nine employees and a turnover of €2 million per annum constitute 90% of Irish business which employ 400,000 people. A very large number of people are involved and microenterprises contribute nearly 20% of gross value added in the business economy.

Most microenterprises are mature businesses, which probably comes as a surprise, with the average firm operating for 25 years. Two thirds are family-owned and half of those are home-based. While we tend to think of the medium-sized sector as being the exporter, it is impressive to note that more than 40% of microenterprises export. More than 70% of owners wish to keep their businesses at their current size. While they do not have an ambition to grow larger, they have an obvious desire to survive.

Some 47% of microbusinesses in Ireland use external finance from banks and other lenders. The interest rate differential will be a key issue. In pre-Covid times, the microenterprise loan fund scheme reported a 44% approval rate in its seven years of operation. The approval rate will be an issue if people are marginal as regards being approved or not being approved. This needs to be looked at thoroughly because it could be the difference between some businesses surviving and not surviving.

Only 55 loans, comprising 2% of all applications, have been approved to young entrepreneurs. Businesses are often excluded from loans because they do not have a track record. They may be viable businesses providing employment. Some 59% of all applications were made directly to Microfinance Ireland. The approval rate was 38% and the interest rate was 5.5%. However, the approval rate for those who applied to the local enterprise offices, LEOs, was 41%. It may well be that the LEOs are better at taking people through the process. We need to examine the reason for this differential in approval rates, even if it is not huge, because it is important. Given that the local enterprise offices offer lower interest rates, why would people not apply to them in the first instance? Some LEOs are better than others. When someone in a local enterprise office is very good, that LEO can become a reference point for other people as to the kind of support available. We all want to be in a position to encourage people to go their local enterprise office and advise them where to go because this is the kind of issue that is raised with all Deputies from time to time.

The 5.7% interest rate for non-financial corporation loans of less than €250,000 compares with an EU average interest rate of 2.5%. If we are to compete and survive, we must accept that a level of investment is needed. If we can borrow for less, we should not be imposing higher interest rates on businesses that are struggling.

Demand for financing was most common among small firms and lowest among microfirms, which may not be able to sustain additional borrowings. Some 48% of microfirms made credit applications for the purpose of working capital. This would be of great importance for liquidity. These may well be very good businesses that could sustain themselves but need working capital to do so. Microfirms have experienced high rejection rates for financing. In September 2018, that rate stood at 22.9%. We need to look at that profile to understand what might happen. This contrasted with rejection rates for bank loan applications for small and medium companies, which stood at 15% for small firms and 6.25% for medium firms. The size of the firm matters with regard to approval rates. This will need to be looked at given the level of employment in the microenterprise sector.

When we consider the post-Covid environment, a recent Central Bank study estimated that SMEs in the Republic may need up to €5.7 billion in emergency liquidity to help them through the Covid crisis. I do not know where that money will come from but it seems like an enormous challenge, which will certainly not be met through this fund alone. In a risk averse lending environment, credit is restricted for all businesses but SMEs are most affected. Sometimes this is about having a cohort of people in a company who have expertise in applying for funding and putting proposals together.

The economic epicentre of the pandemic has been SMEs, with 85% of businesses in the sector having closed to some degree and 34% having shut completely during the lockdown. Companies could not have factored in the coronavirus because it came out of the blue. As such, they could not have prepared to any degree.

Interest rates will be a significant issue. Given that we can borrow very cheaply at the moment, we have to match that borrowing against the cost we would have to sustain supporting people on social welfare. I reiterate that we need job-rich growth but these must be quality jobs. This must be a central principle guiding the various supports that will be given to the business sector because there are many layers to this, including employees and also suppliers.

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