Sunday 19 November 2017

Only 38pc of SMEs sought credit in six-month period

Peter Flanagan

Peter Flanagan

DEMAND for lending from small firms remains low, with barely a third of SMEs applying for loans so far this year, the Irish Independent has learned.

The latest SME Lending Demand Study for the Department of Finance, due to be published today, has found that only 38pc of small and medium enterprises sought credit during the six months between October 2011 and March this year.

That is only a 2pc increase on the previous survey, and follows a consistent theme outlined by the banks and the Irish Banking Federation, the industry trade group.

The report, which was compiled by the accounting firm Mazars, shows 67pc of credit applications that have been completed were approved by the banks, up 2pc on last year's report, with the rate of refusals falling by a corresponding amount to 28pc.

Despite the downturn, the report indicates some companies are still in a position to protect their finances from potential future problems.

Nearly a fifth of those companies which had their credit applications approved, did not draw down all of the facility made available to them.

The study highlights "continued difficult trading conditions" in the SME sector, but adds that the macro-economic problems are much more pronounced on small companies, with more than half of firms which have fewer than 10 staff reporting a fall in the turnover between October and March.

That is compared with only 41pc of the wider sector suffering from falling sales.

Surprisingly, given the wide perception that the banks are not lending, only a fifth of those surveyed said they had personal experience of the banks not lending.

The perception that the institutions are not "open for business" seems to be driven broadly by business representative groups and media coverage, Mazars say. They reported that 45pc of SMEs had developed the perception of a lack of lending from those sources, while 35pc had picked it up from peers in the industry.

The report highlights a number of points for "further consideration".

Among them are the need for the banks themselves to encourage SMEs to apply for credit and not base their decision to apply on trade groups which are highlighting a lack of lending.

It also claims that a response to property debts will be "fundamental" to "right-sizing" SME debt levels, given the amount of firms caught up in property problems.

The banks are also dragging their heels on making a decision on an application, with only 60pc of them approved or rejected within 15 days.

Over half of businessmen who have their loan applications rejected believe the banks have changed their lending policies, highlighting the remaining need for the Credit Review Office to adjudicate on rejected loans, Mazars add.

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