Irish SMEs paying higher interest rates than continental counterparts

Ireland’s small businesses are paying more interest on their loans than the vast majority of their European contemporaries, with interest rates not declining in line with the rest of the eurozone from 2014, according to the Central Bank’s latest SME Market Report.

Data compiled for the six months to September 2014 show can average interest rate of 5.7 per cent for loans of €250,000 or less; equating to 1.8 per cent higher than the average rate charged on loans above this threshold and 3.4 per cent higher than loans of more than €1m.

However, more positively, SME default rates are in decline despite the fact that Irish SMEs are having to contend with more expensive bank financing.

In the last two years, the rate of SME defaults have fallen by seven per cent from 26 per cent in 2013 to 19 per cent in 2015, with the highest number of defaults recorded in the construction and hotel/restaurant sectors. In addition, new lending to non-financial and non-real estate SMEs has picked up encouragingly since the turn of 2014.

But while there has been a 15 per cent drop in SME funding application rejection rates, many small and medium-sized enterprises still consider access to finance to be a major concern. Two-in-five (39 per cent) of SMEs surveyed by the Central Bank voiced major concerns about access to finance.

Despite an increase in funding opportunities, the overall stock of outstanding credit to small businesses is still falling; indicating the amount of repayments made by SMEs is surpassing new lending.

The sectors which receive the largest amount of business finance are agriculture and wholesale/retail, with new loans and renewed overdrafts the most common bank finance products requested by SMEs.

Last updated: 18th January 2016