What will happen to European SMEs if state aid disappears?

12 September 2021
Source: Service Managemant

According to research by credit insurer Euler Hermes, 7 to 15% of SMEs could be in trouble over the next four years due to their inability to meet their financial obligations.

Johan Geeroms, Risk Director at Euler Hermes Netherlands: “The insolvency figures of the past 18 months are obviously distorted. A record low in times of crisis; all thanks to government support packages. There will naturally be a reaction to this now that the government is winding down the support programmes. Only no one knows exactly how that effect will play out. That is why it is important to have figures on this. Our research department has charted three indicators - profitability, capitalisation and interest coverage - that reveal whether a company might run into payment problems as early as four years before a bankruptcy. This shows that 7% of SMEs in Germany may be at risk, 13% in France and 15% in the UK. Had governments not taken support measures last period, these percentages would have been significantly worse, at 17% for France and 26% for the UK.”

Overcompensation through state aid

Geeroms concludes that the survey shows that the vulnerability of European SMEs is increasing, “but at the same time, SMEs are slightly less vulnerable than in 2019, the pre-corona period. Our figures show that too. So government measures have overcompensated. Stopping support measures is therefore advisable and necessary for a healthy economy. Now that we are back to normal, companies have to perform on their own again. This will not be easy for everyone. It is important for business owners to realise that there is an increasing likelihood that customers may fall over and bills may not be paid. ”

Supply chain

According to the researchers of, vulnerable companies in Germany are mainly automotive and transport suppliers. Electronics and paper trading also top the list. The supply chain around automotive is also vulnerable in France. Also, energy and agrifood. In the UK, energy, automotive suppliers, construction and retailing top the list.

Being extra alert

Geeroms warns against blind optimism. “Many companies are relieved. The past period has gone well. Exceedingly well even. It can give a feeling of untouchability. Whereas companies should pay extra attention precisely now that government support is falling away. How will your buyers emerge from this crisis? Make sure you stay in touch with customers and know what's going on. This also applies to customers with whom you have worked for years. Pay attention to invoices that have been outstanding for too long. Get behind them in time, because, especially next period, things may just turn out differently than entrepreneurs take for granted.”