SMEs in recovery continue to find it difficult to get finance

Distressed small and medium sized companies which are now recovering and are potentially viable continue to find it difficult to obtain finance, according to the 14th report reviewing the accessibility of credit for small and medium sized enterprises (SMEs) and farms.

The report, from the Credit Review Office, points to two main challenges: the credit requirements of the real economy as growth returns; and the challenges posed in refinancing some businesses and farms as the banking market contracts.

To date, the Credit Review Office has received 520 formal applications, of which 361 have reached final conclusion. Of these, the office upheld 56 per cent in favour of borrowers, resulting in €29.7m credit being made available to SMEs and farms, helping to protect /create 2,091 jobs.

Credit reviewer John Trethowan did add a caveat to these figures however, noting that since the upper limit was raised to €3m, and with the weakened state of many businesses seeking new credit to grow, it has meant that reporting outcomes of the credit reviews are becoming less black and white.

“This has led me to caveat the upheld appeals number, as some lending is now being agreed on the basis of an interim amount to meet short term needs, with performance milestones agreed for the business/farm whereby further funds will be made available on achievement of these measures,” he said..

Of the aforementioned recovering distressed SMEs, Mr Trethowan said that a trend is emerging of banks tentatively supporting these businesses by offering short term and restricted credit facilities against performance milestones which, if achieved, will allow more funding for longer periods to be advanced. “Such an approach to challenged businesses is prudent and understandable,” he said, but noted that this makes the reporting outcomes of the credit reviews more difficult.

Mr Trethowan welcomed new entrants into the debtor finance market, “anything that enhances supply is helpful”, noting that debtor finance is “helpful for businesses that are recovering”.

However he did bemoan the lack of banks now lending to the SME and farm sector, noting “we couldn’t have afforded to lose Ulster Bank out of the market”.

Mr Trethowan also referred to comments by Bank of Ireland CEO Richie Boucher back in May, when Mr Boucher questioned the quality of some of the decisions made by the office in relation to BOI. Noting that the office was “surprised” by these comments, Mr Trethowan said that that they merit some further investigation by the office.

Of the current microfinance loans scheme limit, Mr Trethowan suggested that the Government should consider an expansion of the microfinance loans scheme limit to at least € 50,000, and possibly € 100,000.

“An increase in the limit will likely also need the term to be extended beyond the current three-five years to ensure that repayment levels are affordable,” he said.

Responding to the publication of the report, Patricia Callan, director of the Small Firms Association, said that it is essential that a wide variety of debt financing options is available, and that the new Strategic Banking Corporation of Ireland (SCBI) loan fund should be used "to attract new financial intermediaries into the market to provide lower cost, new and innovative products, such as longer term loans and interest free holidays, which will meet a market need."