Small businesses are integral parts of the local and global economy. From the local hawkers to the neighbourhood bookstore, these small businesses are reducing poverty and bringing growth to the community. However, for over a year now, the COVID-19 pandemic has affected small businesses around the world. The April 2021 Global State of Small Business Report by Facebook has found that 24% of the global small and medium-sized enterprises (SMEs) reported that they were closed in February 2021 and 60% of global SMEs have made at least one change to the way they do business since the start of the pandemic.

Challenges faced by SMEs during the pandemic 

1. Survivorship

SMEs that are most affected by the pandemic are those made up of 75% employment and are heavily dependent on in-person interactions. Due to strict public health measures, SMEs were required to temporarily close or were forced to run digitally. And because of this, many of them were unable to sustain their business.

According to the survey conducted by Facebook, almost 24% of small businesses around the world reported closure in February this year, compared to 16% in October 2020 and 29% in May 2020. In the Asia-Pacific region, the survey saw variability in the closure rates with Taiwan and Indonesia with the lowest closure rates of 13% and 16%, and India and Pakistan with the highest closure rates of 32% and 28% respectively. It was also found that smaller SMEs were more likely to be closed as there were roughly 34% of solopreneurs and 24% of SMEs with one employee have indicated closures, compared to 18% of SMEs with two or more employees.

2. Financial

A survey by Veem has shown that nearly 55% of the respondents said that the biggest challenge for SMEs during the pandemic is financial challenges. Some of the key factors leading to this problem are speed and affordability in business payments. 43% of respondents agreed that low or no-fee payments are crucial, especially since SMEs need to find quicker methods of payment to pay and get paid during the pandemic.

While 51% of the respondents were confident that they could repay the loans taken out during the past 12 months, one-third of them (33%) are not, due to the economic uncertainty. Fees and payments are huge pain points for SMEs as 62% of SMEs rely on low maintenance fees when opening a business checking account. This is why many small businesses look for better and cheaper solutions for local and global payments.

3. Sales

Sales, especially for brick-and-mortars, were badly affected by reduced mobility and health restrictions. This is mainly because shops that rely heavily on in-person interactions, such as businesses in the hospitality industry, were forced to temporarily close. Even after shifting towards a digital approach, some SMEs continue to report declining sales.

The pandemic has indeed posed multiple challenges for SMEs-75% of operational Spanish SMEs, 63% in Ireland, 64% in the UK, and 66% in Portugal reported a decline in sales. The 2021 Global State of Small Business Report saw that out of the 27 countries and territories sampled, 19 of them reported lower sales. Even countries with more relaxed restrictions such as Taiwan reported a sales decline in 12% of operational SMEs.

4. Employment

The whole world saw a rise in the unemployment rate throughout the pandemic. SMEs play a big part in employing the local communities. In fact, they account for 60% to 70% of employment in most countries. However, many SMEs could not afford to hire more employees due to financial pressures. The International Labour Organisation (ILO) estimated that 8.8% of working hours were lost in 2020 and that the number of people unemployed in the global workforce had increased by 33 million.

Globally, it was reported that 30% of operational SMEs started to reduce employment since the beginning of the pandemic. And it was found that only 7% of operational SMEs managed to increase employment in February 2021. Many SMEs were unsure if they would want to rehire the employees that were laid off during the pandemic—51% of operational SMEs have no intentions to rehire former employees while 25% of SMEs plan to rehire furloughed employees. If reduction in employment continues, this will further negatively impact the economy and labour market.

5. Digitalisation

With strict public health measures and temporary closures, it became apparent that the only way to thrive amidst the pandemic is to go digital. SMEs need to change their way of doing business to meet consumer and employee expectations. According to a survey by Veem, payment-wise, 31% of the respondents admitted that they need to expand their use of digital payments and 12.9% of the overall respondents shared that their biggest challenge throughout the pandemic was having to adopt new technologies and going digital.

Some of the common changes that have affected almost all SMEs are having to increase remote sales and embrace new digital tools. And many SMEs (62%) have responded positively to this—many SME leaders utilise the use of social media and messaging platforms such as Facebook, Instagram, WhatsApp, and many more. So much that we may see these new digital consumer habits and employee expectations last for many years to come, even after the pandemic has ended. SMEs that have yet to digitalise must do so immediately if they wish to catch up with the latest market trends.

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From last year to earlier this year, SME closure rates were high in almost all countries. The pandemic has brought upon many unprecedented challenges towards big and small companies alike—concerns over cash flow, low sales, high unemployment rate, and many more. However, 60% of SMEs are expected to grow revenue this year. Stay tuned to find out how SMEs are surviving the pandemic in our upcoming article.

TranSwap is always keen on helping SMEs to pivot and adapt to the new way of doing business. This includes finding new means of going global while transcending business banking through innovation and technology. With TranSwap, businesses can get customised solutions that suit their business needs, including white-labelled and API solutions. For further enquiries, send your questions here or visit our website at transwap.com.

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