Mazars study shows 25pc of SME business loans in trouble
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A quarter of small business loans are either in trouble or "on watch" by banks as the economy goes through the biggest upheaval in a generation, according to a major government-commissioned report.
A draft copy of the keenly awaited report on lending to small- to medium-sized enterprises (SMEs) by consultants Mazars highlights "the very significant and continuing deterioration in general trading conditions" among SMEs.
The report, seen by the Irish Independent, found that 74pc of 1,076 companies polled saw a fall in turnover and demand for their goods and services in the nine-month period to February. Sales in more than 45pc of small businesses slid over 20pc.
Almost six out of 10 companies cut employee numbers as they battened down the hatches, with 28pc slashing their workforce by over 20pc.
The most comprehensive survey of its kind in years looked at €34.5bn of loans out to SMEs from Allied Irish Banks, Bank of Ireland, Anglo Irish Bank, Ulster Bank and National Irish Bank.
Finance Minister Brian Lenihan revealed snippets from the report to the Dail yesterday, showing a discrepancy between what banks and businesses are calling a loan refusal.
Bank data showed that 14pc of credit applications were being turned down, whereas SMEs were reporting an average refusal rate of 24pc, rising to 30pc for businesses with less than 10 staff. "Banks do not record informal queries or requests, but a customer whose informal request is rejected counts as a refusal," the minister said.
Firms said that decline rates ranged from 18pc to 33pc across the banks. The most common reasons for refusal were a "change in bank lending policy" (about 23pc) and "the sector in which the business operates is no longer a sector to which the bank is prepared to lend" (16pc).
The value of new applications for credit fell by 42pc -- consistent with recent Central Bank figures.
All the banks have become more cautious, with one institution -- most likely Anglo Irish Bank -- not really in the market at all. "In all other cases, applications are being reviewed more tightly, on a case-by-case basis," it found. And cases where banks make exceptions to their lending policy has "decreased significantly".
Predictably, almost half the companies in the real estate sector, excluding speculative development lending, were given the thumbs-down sign, followed by the general construction industry, at 45pc.
Transport, storage and communications companies fared best, with only 6pc of their applications meeting a brick wall.
The survey found that 14pc of firms had not drawn down on approved facilities, mainly because they were not needed, or the costs were too high.
Over half of SMEs surveyed have applied for credit within the last 12 months. By far the most common reason was for working capital and cash flow purposes, making up about 22pc of requests.
Some 15pc looked to tap the banks for extra funds as their turnover slipped, and a further 13pc sought finance as their collections from their own debtors fell.
The most common condition slapped on borrowers was to provide personal guarantees for loans (almost 17pc), followed by a requirement to provide regular management accounts (about 16pc).
Plunge
Other than this, the survey found "no material changes in terms and conditions of lending".
Overall lending to SMEs in the construction sector plunged 20pc in the nine months to €1.3bn, followed by a 11pc slump in funds to financial services companies, to €1.4bn. However, loans to the agricultural, hunting and forestry industries jumped 8pc to €4.8bn.
Some banks were unwilling to share information on the rates they charge firms. But of those that did, costs have come down. This reflects a sharp drop in inter-bank lending rates from record highs last October as the financial system teetered on the brink.
Some banks have introduced a so-called "liquidity" or "funding premium" to loans to help their margins. And incidents of below-cost pricing of loans all but vanished.
- Joe Brennan
