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Business loans grow for first time since Covid crunch

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November saw business sentiment improve says Loretta O'Sullivan of Bank of Ireland

November saw business sentiment improve says Loretta O'Sullivan of Bank of Ireland

November saw business sentiment improve says Loretta O'Sullivan of Bank of Ireland

Lending to businesses grew in November for the first time since the pandemic started, according to new data from the Central Bank.

The volume of new loans non-financial companies crept into positive territory following a sharp bounce in economic growth in the third quarter, with large loans accounting for the bulk of lending.

However, interest rates charged to Irish businesses were still more than two times higher than the eurozone average, highlighting the challenges companies face in 2021 to recover from the coronavirus recession.

Total new loan agreements by businesses in Ireland were €1.2bn in November, an increase of 7pc in annual terms. It was a significant improvement on October, when credit contracted by 31pc compared to the same month in 2019.

The figures were boosted by a large rise in loans worth more than €1m, which were up 19pc year-on-year during November. These loans, which made up 72pc of all new lending to businesses in the month, typically go to larger companies. In total €868m of these loans were given out.

Smaller loans of under €250,000 also increased slightly by €8m to €221m, indicating that smaller SMEs were still struggling to access credit or reluctant to take on new debt in November. Loans with values between €250,000 and €1m stood at €118m, a decline of 37pc.

“November was an interesting month in that business sentiment improved even though Level 5 restrictions were in place," said Dr Loretta O'Sullivan, group chief economist for Bank of Ireland. Our Pulse research finds that this was partly because firms were expecting some relaxation of public health measures ahead of Christmas but also because of the breakthrough on the vaccine front."

Another explanation for the turnaround in credit appetite might have been the availability of Government-backed Covid-19 lending schemes, according to John Finn, managing director of Treasury Solutions.

"There was a real reticence to borrow among businesses in the earlier part of the year because people got burnt in the last crisis," he said. "I think it helped that these programmes were available."

He singled out Enterprise Ireland's Sustaining Enterprise Fund and the Future Growth Loan Scheme (FGLS) as two successful examples.

The Sustaining Enterprise Fund has provided about €138m in funding to companies, according to December figures. The FGLS, which was expanded in the July stimulus plan, has provided €314m.

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