SME liquidity needs during the COVID-19 shock
2020
The recently enacted policies to contain the spread of COVID-19 have placed a temporary block between the consumption demands of households and the supply capacity of firms in many sectors. In the context of this shock, a number of firms are likely to need some form of external liquidity support if they are to re-open once these policies are eventually relaxed. We use a combination of sector- and bank-level data to estimate Small and Medium Enterprises (SME) liquidity needs over a three month period, under a range of scenarios. We estimate that non-agricultural SMEs in Ireland will need between €2.4bn and €5.7bn if their revenues are curtailed for three months. The banking system is one potential source of liquidity provision for these firms. We look at the degree to which banks are likely to have the incentives and capacity to provide this financing. In addition, we outline the possible intervention options available to policymakers to support short-term SME liquidity needs, should private sector liquidity provision prove insufficient. All intervention options involve delicate trade-offs, which must be carefully assessed.
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