Loan refusal rates declining for SMEs

The Irish SME Association (ISME) published its Quarterly Bank Watch Survey for Q4 2017 last week, confirming a fall in loan refusal rates for Ireland’s small businesses. The survey also noted that the length of time it takes for small firms to access finance is down to six weeks, from decision to drawdown.

Loan refusal rates have fallen between Q3 and Q4 2017 from 39% to 32%, while demand for credit among small firms has risen in the final quarter, up from 34% to 38%.

On average, small firms are waiting four weeks for an initial decision on their loan applications from banks. The average wait time for drawdown is still two weeks.

The ISME welcomes the decline in loan refusal rates from high-street banks, but believes small firms should consider diversifying their lending options and seek to benefit from alternative sources of business finance.

Neil McDonnell, CEO, ISME, said: “The Bank Watch Survey for Q4 ends 2017 on a positive note. The reduction in refusal rates and the time taken from drawdown to accessing finance is welcome.

“The banks, however, must ensure that this reduction continues in 2018. The 32% refusal rate is still considerably high. Banks could help SMEs improve their application procedures by giving more structured feedback to the domestic market on why applications fail.

“A credit refusal can forestall growth opportunities. SMEs who fail to access credit from the pillar banks must demand reasons for their failure.

“Half of respondents stated that banks are making it more difficult to access finance. We are encouraging SMEs to tap into other sources of finance, such as SBCI and Microfinance, as well as peer-to-peer, discounting, equity and crowdfunding.”

In order to raise awareness of alternative forms of finance for Ireland’s small business community, ISME believes the government must ensure that SBCI funds are properly promoted by banks and used appropriately by small firms.

It has also called on the government to restructure the Government Credit Guarantee scheme and promote it alongside the Microfinance scheme. In the uncertainty that still surrounds the UK’s impending departure from the European Union (EU) and the potential impact on Ireland’s small businesses, ISME also urged the government to investigate fully any additional sources of finance that can be made available to viable, growing SMEs.

Date published 19 Dec 2017 | Last updated 19 Dec 2017