SME credit shortfall to continue for next five years

The shortfall in bank credit available to small and medium-sized enterprises (SMEs) will continue throughout Europe for at least another five years, new research has found.
 
A recent study by PricewaterhouseCoopers (PwC) suggests that firms will carry on struggling to fill the bank credit gap using alternative credit sources as they don’t typically enjoy the same level of access to bond markets as their American counterparts.
 
Declan McDonald, restructuring and insolvency partner for PwC Ireland, believes affordable access to credit has always been a challenge for European SMEs regardless of the economic climate; but the problem is now “more acute than ever”.
 
“Over the next few years, many SMEs are likely to find the already demanding terms of bank credit expensive and while they will increasingly wish to invest for future growth, banks remain under pressure to reduce and control their levels of leverage,” said McDonald.
 
“So, the scale of the non-bank lending opportunity in Europe is huge, and will only grow over the next few years.
 
“This should be good news for Irish SMEs who traditionally have been heavily reliant on bank lending to fund their businesses and are now struggling to source investment for restructuring and growth as the economy recovers.
 
“Already we have seen significant activity in the loan sale market in Ireland and a number of new funds entering the market targeting the SME sector.”
 
There is a major opportunity out there for non-bank institutions to extend credit to Irish SMEs, particularly with banks now taking a more risk adverse approach to lending to small firms, according to Ronan Horgan, managing director of Bibby Financial services Ireland.
 
“As a funding provider to the SME sector in Ireland, we are seeing positive signs of recovery in the market,” said Horgan.
 
“According to recent Vision-net.ie figures, over 10,700 new start-ups were formed in Q1 this year. However, without credit to take on new business, met day-to-day costs and investment [for the future] over the next few years, these SMEs will not be in a position to benefit from new opportunities or even survive in some cases.
 
“Irish SMEs and legislators need a culture change when it comes to finance. If businesses are to survive, grow and sell domestically and internationally, they need to look at alternative, non-bank sources of finance, which are available and willing to lend here.”

Date published 23 Apr 2014 | Last updated 23 Apr 2014