SMEs feel the pinch with lending falling in Q2 2013 year-on-year

Lending to Ireland’s small businesses fell in the second quarter of 2013 when compared to the same period a year ago.
 
New statistics from the Central Bank showed lending to non-financial or property related small and medium enterprises (SMEs) declined by 1.4 per cent year-on-year. The amount of credit outstanding to the sector now stands at €1.5bn – 5.8 per cent less than this time last year at €25.3bn.
 
The rate of reduction increased in the last 12 months, having fallen by only 4.6 per cent between 2011 and 2012.
 
Around €57.5bn in credit is now outstanding to SMEs, but in a sign of how heavily small firms borrowed during the financial boom, over half of that figure is currently tied to property.
 
Overall, lending to firms beyond the SME sector fell even further to 2.3 per cent during Q2 2013 and by 4.6 per cent year-on-year.
 
The collapse of the property market has been attributed as the main reason for the continued shrinking amount of credit available to Irish businesses in general, as well as the increase in firms unwilling to borrow in what remains an uncertain economic backdrop.
 
Deposits held by Irish resident private sector enterprises in banks in Ireland rose by €1.1bn between April and June. Although that increase was much lower than at the start of the year, it does indicate that firms are continuing to hoard funds rather than invest it elsewhere.
 
Meanwhile a new business barometer from ISME found that just five per cent of the 22 per cent of firms who intend to hire new employees will do so on a permanent basis this year, blaming a lack of cash flow.
 
Harry Parkinson, managing director of Close Brothers Commercial Finance Ireland, said: "Cash flow issues remain a major obstacle to Irish firms wishing to consolidate and grow and this is having a knock-on effect on the economy’s recovery as a whole."

Date published 30 Aug 2013 | Last updated 30 Aug 2013