One-in-five Irish SMEs left in the dark over bank loan refusals

Irish small and medium-sized enterprises (SMEs) remain hugely reliant on bank lending to underpin their business growth, with bank loans almost 15 times more popular than equity finance, but almost a fifth of SMEs refused bank finance are still given no reasoning as behind the decision.

That’s according to new research compiled by the Central Statistics Office (CSO), examining SMEs’ access to credit during 2014.

The figures show that larger SMEs and those which export a greater proportion of their goods and services are more likely to be granted funding by the banks.

The faster-growing small businesses were also more likely to be successful in their lending application, with firms labelled ‘high-growth enterprises’ securing bank finance seven times out of ten cases, compared with rates of less than 50 per cent for other SMEs.

Marc O’Dwyer, chief executive, online software firm, Big Red Cloud, said: “The results of the 2014 CSO Access to Finance Survey shows the disparity that exists between those SMEs that are export focused and those that serve the local economy.

“The micro and small business sector was further disadvantaged as almost 92 per cent of medium-sized enterprises were successful compared to just below 70 per cent of micro-sized enterprises.”

The Irish lending landscape has long been considered too dependent on bank finance given the deficiency of alternatives.

Recent studies by the Irish Examiner showed that not only are the lending options available to SMEs worse than those elsewhere, Irish firms are also paying twice the eurozone average for credit and are faced with the highest interest rates in the currency union.

The European Commission was scathing of the situation in its country report last week.

The report said: “The concentrated SME lending market translates into higher interest rates than the euro area average. The Irish SME lending market effectively remains a duopoly.”

Despite non-bank financing options – equity finance, crowdfunding and venture capital -  being encouraged by the Government, the Commission found they “do not yet seem to be replacing bank credit in a significant way”.

Date published 7 Mar 2016 | Last updated 7 Mar 2016