COVID-19 brought uncertainty and pressure to all human endeavours- both locally and internationally. In Nigeria, the COVID-19 pandemic resulted in a series of lockdown in the major political and commercial states of the country (i.e. Abuja and Lagos) as well as other geopolitical areas. The impact, for the most part, has been catastrophic.

According to the National President, Association of Small Business Owners of Nigeria (ASBON), "the COVID-19 pandemic created a negative impact on the overall operations of SMEs in the country. As a result, there have been a lot of cut downs in production which led to low sales and a decline in income reported by most SMEs. In addition, many businesses especially Small and Medium Enterprises (SMEs) in Nigeria have collapsed due to the adverse effect of the pandemic".

This challenge has made many advocate for an alternative way of addressing the effect of the pandemic, especially in relation to providing supportive responses to ensure the survival of Small and Medium Enterprises (SMEs).

To mitigate the potential loss in employment opportunities derived from SMEs, the government specifically injected N200bn to facilitate the improvement of the industry through the provision of loan schemes that small business owners can participate in. Though the government has been giving immeasurable attention to the viability and sustainability of SMEs in the country, the sudden outbreak of the coronavirus pandemic has cut short the plans of the government in fostering SMEs in the country.

While there is an existing challenge relating to the funding of SMEs, the government can still do more in various ways especially through an effective strategy in promoting different investments in areas such as farming, fishing, well construction, masonry, productive trades, tailoring, and other small businesses.

In a bid to help households and Small and Medium Enterprises (SMEs) in Nigeria overcome the adverse effects caused by the Coronavirus, particularly and in relation to the banking and finance sector, the Federal Government of Nigeria, through the Central Bank of Nigeria established different credit schemes to cushion the effect of this scourge. In this regard, the CBN issued a circular, dated March 16, 2020, containing certain policy measures specifically initiated to provide support to households and businesses because of the pandemic.

These policy measures include the creation of a N50Billion Targeted Credit Facility, creation of a N100Billion intervention facility as credit support for the healthcare industry, reduction in the applicable interest rates on all CBN intervention facilities, and regulatory forbearance through a grant of leave to Deposit Money Banks to extend the tenors of credit facilities granted to businesses and households affected by the pandemic.

Also, the Central Bank of Nigeria through NIRSAL Microfinance Bank, has announced the reopening of its portal for Micro Small and Medium Enterprises (MSMEs) and households affected by COVID-19 to access up to $70,000.

The funding is set to be disbursed through NIRSAL Microfinance Bank. Each retail loan will carry an annual interest rate of 9 per cent, with a term of up to one year, the maximum loan size is NGN 25 million ($61,000) for MSMEs.

With these palliative measures put in place by the government via CBN to alleviate the impact of the pandemic on businesses and households, SMEs may leverage on the credit schemes established by the CBN as a source of liquidity for their business operations during these times.

It is also important for small business owners to examine the different intervention measures by the government vis-a-vis how these may impact the provisions of their existing financing arrangements.

As stated earlier, many businesses have been forced to close temporarily due to either government restrictions or a reduced commercial demand for their products or services.  Thus, reduced liquidity and cash flow are likely to be a major concern for most SMEs, as well as their ability to comply with a number of covenants and duties under their financial arrangements, including debt service obligations, financial covenants, and maintaining the original nature/objects of their businesses. On the other hand, the primary issue for lenders during the pandemic appears to be balancing their contractual commitments in relation to funding obligations vis-a-vis the need to manage increased credit risk.

As much as lenders would like to identify with SMEs who have erstwhile been faithful in debt service, at this time, lenders are also burdened with loans that could go from performing to non-performing or even distressed loans; and the resulting impact on their regulatory capital and profitability could be very negative. As such, SMEs and lenders (all instances of "lenders" will be hyperlinked to our Quick Loan Page) would have to assess how their financial and business positions as a result of the pandemic affect their rights and obligations under the provisions of the facility agreement.

During this period, parties to financing arrangements will have to closely review and analyze specific provisions of their financial documents, including representations and warranties, financial covenants, events of default, and restrictions with respect to change of business, amongst others, in order to determine the extent to which the pandemic has impacted their subsisting financing arrangements. Following such review, parties may then be able to identify the potential short-term or long-term solutions to the difficulties they currently face in meeting their contractual obligations.

Finally, in addition to the contractual analysis, parties will also need to understand the impact that the various intervention schemes by governmental authorities may have on the terms contained in their respective finance documents.