Small businesses going bankrupt

"Now you have the specter of massive hunger and massive unemployment."


There is no scheme under the “Bayanihan Heal as One Act” to help small businesses, which make up 99 percent of all enterprises.

The small man and the small businesses. These are the two sectors most devastated by the coronavirus crisis and the ensuing 30-day lockdown government has enforced in the main island of Luzon to contain it and mitigate its impact.

Lockdown means no one could get out of his house. Every household is allowed only one nominee to get out of the house to do errands—primarily to buy food, medicine and other necessities.

Lockdown also means nearly all the small businesses will be decimated before the coronavirus crisis peaks out—which is about four to six months. They are not allowed to operate. They cannot get the supplies and spare parts needed by their shops and factories to produce a product or a service. And even if they are able to produce, they are not allowed to deliver the finished product to their customers.

One of the printers of my weekly BizNewsAsia magazine will close shop this week. It cannot get the ink, paper, and other supplies to print. His workers are not allowed to report for work because of the lockdown. And even if the printing shop can print, it cannot deliver the magazines, because the checkpoints do not allow him to do so. With the lockdown, the government, in effect, has created a perfect circle. You stay put in one place—point zero. Even if you go around 360 degrees, you end up at point zero. Point zero means bankruptcy.

Small businesses—the so-called micro, small and medium enterprises (MSMEs) account for 99.6 percent the nearly one million businesses in the country. They employ 61.6 percent of the total number of employed.

MSMEs are vulnerable to lockdown because they have very little capital. Of total loans of the entire banking system to business, only 6 percent went to small businesses. The working capital of small businesses is good for at most, two weeks.

With the one-month lockdown in Luzon, these small businesses have no more cash. They have negative balance sheets. They cannot pay their workers. The workers have been fired. The result is massive unemployment.

NEDA estimates up to one million workers would lose their jobs with the lockdown in Luzon. The island accounts for 73 percent of the entire economic production of the Philippines. And that 73 percent, about P13.14 trillion worth, cannot be produced for at least a month.

So now, you have the specter of massive hunger and massive unemployment.

Government’s response is to enact the Bayanihan Heal as One Law. Aside from containing the coronavirus, its main purpose is to give cash and food rations to the poor—about 18 million of the country’s 23 million families. Cash is P5,000 to P8,000 a month for two months, depending on the minimum wage prevailing in each of the country’s 17 regions.

An average P6,000 cash doleout per family going to 18 million families is P108 billion. Double that, it is P216 billion. That is only for two months. What happens after that?

Then, after government spending P216 billion for food for the poor, what happens to the small businesses? There is no specific amount allotted for them under the law to boost their depleted capital.

Assume a small business needs P2 million a year to operate. For two months, a small business needs P167,000. Multiply that by 996,000, you get P166 billion.

In the largest rescue package ever designed by mankind, the United States will provide an unprecedented $2 trillion to most individual Americans and their children, $500 billion to bail out big businesses, and $350 billion for small businesses.

The $350 billion for small businesses is for them to keep their workers on their payroll so they are not fired for the next four months. The $350 billion need not be paid back to the government as long as they don’t fire their workers. In other words, it’s free money. To preserve jobs.

We don’t have such a scheme for small businesses under the Bayanihan Heal as One Act.

What the law provides is to empower President Duterte to order all the banks and lending institutions, that means including the pawnshops and credit cards, to postpone collecting the amortization on the loans of their borrowers, if such amortization falls due during the one-month period March 15, 2020 to April 15,2020—without interest, without penalties, without fees and other finance charges.

On foregone interest alone for one month on their loans, the banks will lose P72 billion. But since the small businesses account for only six percent of total loans, only P4.32 billion of that will benefit the SMEs. The balance of P68 billion will be enjoyed by big businesses.

“With the help of the Congress, the Duterte administration will be able to use all available state resources to slow the spread of this COVID-19 virus and cushion its adverse economic impact on marginalized and vulnerable sectors,” says Finance Secretary Carlos Dominguez.

As the saying goes, “we want to see the color of your money.”

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Topics: Tony Lopez , Small businesses , micro small and medium enterprises , MSMEs , Bayanihan Heal as One Act , coronavirus disease 2019 , COVID-19
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