Rate of loan refusals for SMEs among highest in EU

THE RATE of loan refusals to small and medium-sized enterprises (SMEs) in Ireland has gone from being the lowest in the EU to one of the highest as a result of the banking collapse.

According to a Eurostat survey, the proportion of unsuccessful loan applications by Irish SMEs rose from 1 per cent to 27 per cent between 2007 and 2010.

The rapid contraction in Irish banking credit was eclipsed only by Bulgaria, where loan refusals to SMEs jumped from 3 per cent in 2007 to 36 per cent in 2010.

The survey, published yesterday to coincide with European SME Week, assessed credit patterns in 20 EU states for which data was available and was based on data from more than 25,000 businesses.

Unsurprisingly, the economic crisis has made it more difficult for SMEs to access credit, with all but one of the 20 member states surveyed witnessing the proportion of unsuccessful loan applications rise.

The exception was Sweden, where unsuccessful applications fell from 9 per cent to 6 per cent.

Excluding unsuccessful requests, the survey split applications into those which were fully successful and those which were partially successful or granted a loan under less favourable conditions than initially requested.

The percentage of successful loan applications by SMEs was lower in 2010 than in 2007 in all 20 states. The proportion of partially successful loan applications also increased in all countries.

The largest decreases in the success rate were recorded in Bulgaria (from 87 per cent of all loan applications in 2007 to 43 per cent in 2010) and Ireland (from 97 per cent to 53 per cent).

Falls of less than 10 per cent were recorded in Finland (from 98 per cent to 96 per cent), Malta (from 94 per cent to 91 per cent), Sweden (from 84 per cent to 78 per cent) and Germany (from 85 per cent to 76 per cent).

The latest report from the Government-established Credit Review Office, set up in 2010 in response to concerns that viable businesses were being denied credit by banks, suggested the demand for loans from SMEs was low.

However, Mark Fielding, chief executive of small firms lobby group Isme, said banks had tightened their loan criteria and were not meeting demand from businesses.

Despite claims by banks that more than 80 per cent of loan applications were successful, Mr Fielding said the vast majority of small businesses were being “shut off” from credit. He said the Eurostat figures reflected the massive contraction in credit across the banking sector.

His comments were echoed by the chairman of Ibec’s Small Firms Association, Ian Martin, who said cash in the marketplace had “completely dried up”.

Mr Martin said the banks were basing their successful loan figures on the number of completed loan applications, which he said was bogus as they did not encompass loan rejections that occurred early on in the process.