Business Irish

Thursday 8 December 2016

Putting the small firms back on an even keel

Consumers are reluctant to spend and banks have returned to prudent lending practices, creating huge challenges for once viable small to medium enterprises. By Peter Flanagan

Published 10/11/2011 | 05:00

JOHN Perry is a busy man these days. As minister for small business (SMEs) he has the unenviable task of dealing with a sector that employs more than 650,000 people and has been crippled by the economic downturn.

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The plight of SMEs has been one of the worst aspects of the crisis. It seems that one day after the next we hear about a business that was a star during the boom and has now closed down or halved its workforce.

The SME sector has in essence suffered a double whammy. The environment is much more hostile to them now than it was five or six years ago.

People aren't spending and as a result a firm that was viable in 2006 may not be viable now; and to add to the problems, the banking crisis has meant that lenders are really not in a position to hand out cash like they did before, causing huge enmity between the two sectors.

It's into this atmosphere that Mr Perry has arrived, but if the problems get to him, he is hiding it well.

Dressed impeccably in a navy suit and pink tie, complete with pocket square, Mr Perry is realistic about the plight of the sector today.

"Look, the SME sector has been hit really hard by the crisis; there's no getting away from that," he says.

"For most small firms now, survival is the new success, and firms have had to become more pragmatic then they ever have before."

Becoming more pragmatic than ever before is one thing, but when businesses are no longer profitable, and jobs are being lost hand over fist, pragmatism will only get you so far. Mr Perry acknowledges that ultimately the sector will live or die by the state of the wider economy.

Mr Perry's career before politics was spent as a small businessman in Ballymote, Co Sligo, where his family own a number of enterprises, so he feels he understands the sector well.

That understanding doesn't extend to the blanket backing of the SME sector when it comes to the row over access to credit, however.

By some estimates, around 80,000 SME jobs have been lost since the economic collapse and, depending on who you talk to, a lot of that is due to the banks not lending enough money.

Small firms groups ISME and the Small Firms Association have been particularly vocal on this matter but the Irish Banking Federation as well as the independent Credit Review Office say the demand for lending just isn't there.

The dispute has often descended into an unseemly war of words at times, and Mr Perry is acutely aware of the strength of feeling. As far as he is concerned there are problems on both sides.

"During the boom there was lazy lending by the banks, and lazy borrowing by the businesses.

"Looking back today that was never sustainable and it shouldn't have happened in the first place.

"The problem now is when people see the billions the taxpayer has put into the banks and they feel they have got nothing in return."

Prudent lending

"The banks have returned to prudent lending practices and they need to see just how viable the business is before they lend to it.

"While that is understandable, it can cripple a business that is relying on that credit line so I would like to see the banks make a decision on a credit application faster than they currently are," he claims.

To that end, the minister has expressed hope that the 2009 Banking Act may be changed to compel the banks to make a decision within a certain timeframe and not leave the customer hanging but that is some way down the line.

The Government's immediate concern is for a partial loan guarantee scheme (LGS). Something that is being treated as a panacea for all of the sectors trouble in some quarters but Mr Perry is clear on the limits of the plan.

"The scheme will be for companies who have a viable business but may not have, for example, the ability to post collateral with the banks. That is key for a lot of firms," he says.

John Trethowan who heads the Credit Review Office, which reviews applications turned down by AIB and Bank of Ireland, has criticised the guarantee, claiming it would only replicate the work of the banks but Mr Perry is clear that the scheme is needed.

"This is not to replace the banks' work but is to act as a guarantor for companies that may not get credit otherwise, for borderline risk. It has been highly successful in other countries and we hope it will be here too."

He is very supportive of the CRO but worries about the relatively low number of applications to the office. Nevertheless, he sees it as an important part of the government levers to help small business.

Other levers include a plan to reduce regulation in the sector. Mr Perry is quick to say that regulations should not be cut to the point where things like safety and pollution are compromised, but he wants the process simplified for SMEs.

"Sensible regulation for a big multinational could cripple an SME that might not have the staff or the time to worry about lots of red tape.

"I would like to see the system simplified to the point that a small company can earn a cert showing it was compliant with all relevant regulations and leave it at that."

The one aid to SMEs Mr Perry really seems to think would be essential to the sector is the idea of a freephone advice or help line for small business people. In his mind the line would be manned by people experienced in business who could advise company bosses on how to handle certain situations. When asked about the one thing Mr Perry would do tomorrow for the sector this is what he points to.

"It's no longer enough for government to pay lip service to the SME sector, we have to work hard to get the sector back on its feet and I intend to do that" he says.

That will be a difficult task. The sector, as a whole, is crippled at the moment -- there's no getting away from that. What Mr Perry and his colleagues do in the months ahead will be crucial to the future of the sector. It is a task he seems more than willing to face.

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