Significant fall in demand for credit from SME sector
DEMAND for credit among small and medium-sized businesses across the island has fallen significantly in the last three years, a report claims.
The study by Intertrade Ireland, which has been seen by the Irish Independent and is due to be made public shortly, concluded that finance is no longer the most significant issue facing SMEs in both the Republic and Northern Ireland.
The most pressing problems include finding new customers and addressing cost pressures, it said. But it also pointed out that SMEs are over-reliant on short-term bank funding, including overdrafts and loans.
The report claims the appetite for credit has been depressed due to a range of factors -- including a fall-off in domestic demand, a lack of consumer confidence and legacy debt levels.
"While the demand for credit is at its lowest level since 2010 . . . there remains a concern that if an economic recovery were to gain momentum, it could be inhibited or even derailed by a supply-side deficit," the study said.
Intertrade Ireland was set up by governments on both sides of the Border to help boost north/south co-operation and trade between the two jurisdictions.
Other key findings in the report include:
* At the end of December 2012, total bank finance to SMEs across the island was €31.5bn -- €25.7bn to businesses in the Republic and €5.8bn to those in Northern Ireland.
* SMEs have a disproportionate reliance on banks for funding. Bank funding accounts for 94pc of total SME finance, greater than elsewhere in Europe.
* There is a lack of knowledge about alternative funding options.
* The second main source of funding is external equity finance, including seed capital, venture capital and business angel finance.
* Direct government funding represents less than 1pc of total SME finance.
* About 7pc of micro-businesses indicated that property debt on their books was an issue in raising finance. This rose to 19pc for small firms and 23pc for medium. A quarter of firms with existing debt said it was a constraint in getting credit.
The report has made several recommendations, including ensuring that all banks and public funding agencies should provide SMEs with a written and clear reason as to why their formal application for credit has not been accepted.
It said banks on both sides of the Border should also introduce programmes to ensure quicker turnaround on decisions, especially at the smaller end of SME lending.