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SMEs in Hungary most likely to struggle from lack of reserves

In Hungary, SMEs are the most likely to struggle due to a lack of financial resources to survive the effects of the coronavirus pandemic, according to research by Via Credit.

The research takes a look at the financial reserves of 30,000 businesses in the country, calculating how many months each company would be able to survive without a source of income.

"Looking at the entire sample of 30,000, we can see that business employ 55 people on average, giving jobs to 1.67 million people," says Alex Papadimitropulosz, senior partner at Via Credit. "They spend HUF 312,000 on each person, including wages and contributions. Half of the businesses have a reserve enough for paying wages for four months, presuming the lack of income and extra costs during this period. A quarter of companies have liquidity only enough for a month."

Via Credit stresses that these numbers are merely theoretical, as most companies are still likely to have some source of income and extra expenses, as well as access to loans.

Some 24,000 of the investigated companies are small enterprises. About half of them have reserves for four months, while 40% have reserves for less than three months. A quarter of the businesses only have resources to last 40 days. The research reveals that companies with fewer employees tend to be in a better position.

Half of the 5,000 medium-sized businesses possess reserves enough to last three months. While the numbers suggest that their situation is worse than that of small enterprises, Via Credit argues that these companies have a more professional management, a more diversified clientele, and a better solvency ratio, meaning that their operational risks are somewhat lower.

The average financial reserves of the 1,300 large enterprises included in the research are even lower

The research also takes a look at 1,300 large enterprises. More than half of these companies only have resources to enough for less than three months. On average, their reserves are not enough to last two months. 

On the other hand, Via Credit points out, most of these large companies are multinationals, meaning that the parent company only keeps the necessary minimum amount of resources on the subsidiariesʼ accounts. This also means that the parent company can always provide financial assistance.

Papadimitropulosz argues that small businesses are the most likely to be forced into making decisions due to liquidity reasons.

The research also argues that large enterprises tend to pay their employees more than small ones, meaning that they can resort to cutting wages to improve their financial situation.

In the case of smaller companies, alternative forms of payment are more common, and company heads are most likely to cut these benefits first as a form of decreasing expenses, the research concludes.