Wednesday 29 January 2020

Quarter of SMEs given no reason for loan rejection

Peter Flanagan and Thomas Molloy

ALMOST a quarter of small firms are being refused loans without explanation, and the banks are taking a month to make a decision on applications, the latest government-backed report on lending to small and medium enterprises (SMEs) has revealed.

According to the semi-annual SME Credit Demand Survey for the Department of Finance, 24pc of small firms were not given a reason when their application for credit was turned down, up from 15pc last spring.

Perhaps more worryingly, nearly half of all applications are taking longer than the government recommended 15 days to be turned around, putting 47pc of loans into a form of constructive refusal.

On average, SMEs have to wait 29 days to be told if their application has been approved or not, with 7pc of applications taking more than 12 weeks to be processed.

Overall, the report, which was compiled by the research firm Red C, found that demand for credit in the small business sector was trending upwards but still remained low, while the banks are approving more requests for credit.

The survey shows 76pc of loans and other credit was approved between March and September, up 4pc on the previous period.

About 39pc of SMEs sought credit during that time, up marginally on the previous report.

The growth was driven by micro companies with fewer than 10 employees, where demand rose by 6pc, but 2pc less "small" firms sought a loan.

More than three-quarters of companies refused credit disagreed with the reasons they were given for being turned down, while just under half of SMEs believe the banks are not open to lending to their sector.

Only 1pc of small firms believe the banks are making money available for a "large number" of SMEs.

The report was welcomed by Finance Minister Michael Noonan, who described it as "comprehensive", but SME lobby group, the Small Firms Association, said the report showed it was "clear" that the banks still have issues when dealing with its customers.

"It is critical in rebuilding the small business banking relationship that communications are improved, that clarity is given around decision-making rationale and that (this is) achieved in the next six months," said SFA boss Patricia Callan.

The survey was published on the same day the consultants Grant Thornton published their review of the Credit Review Office, which adjudicates on

SME loans turned down by AIB and Bank of Ireland.

The review was broadly supportive of the CRO but called for the office and its head John Trethowan to increase its profile, and to expand its role beyond just the pillar banks.

The government has also launched a public consultation on the CRO which will conclude on December 21.

Mr Trethowan welcomed both moves and said he was "pleased" the Grant Thornton report backed his office.

In a separate report published by the Central Bank on the state of the economy, researchers reiterated that they also believe the banks are still refusing to lend.

"It is notable that Ireland has higher SME credit rejection probabilities than [expected]," the bank said in a report. "This is indicative of supply-side constraints."

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