Access to credit not the main problem facing SMEs, conference told

Research suggests finding customers is chief concern of companies


Small and medium size enterprises are not primarily concerned with access to credit as the chief barrier to growth, a conference heard today.

In fact, the issue of financing ranks only third on the list of problems facing the sector, behind both the ability to find consumers of products and services, and the threat of competition.

The claim comes as part of an overall joint Economic and Social Research Institute (ESRI), Department of Finance conference today.

An address by economists Petra Gerlach-Kristen, Brian O’Connell and Conor O’Toole on credit constraints and macroeconomic effects, point out that only a “small minority” – just 4 to 11 per cent – of small to medium companies are actually experiencing credit constraints.

“Most SMEs do currently not apply for funding because they do not need it,” a summary document says.

“Those facing credit constraints are mainly young, small firms and firms that have a domestic customer base and a debt overhang. Their main response to the constraints is to reduce investment and jobs.”

However, they say that because this has a clear impact on employment and economic growth, there is a need to explore policy that addresses what constraints to capital do exist.

Their research shows that 38 per cent of companies reference finding customers as the main problem, followed by the extent of competition (19 per cent) and access to finance (15 per cent). ‘Other’ problems account for 28 per cent.

“The extent to which the financial system can provide adequate funding for firms once aggregate demand recovers remains an open question. Further research on the financing of SMEs is needed to establish this,” say the authors.

The conference also heard from Adrian Devitt of Forfas who believes that promoting equity investment in companies represent an opportunity to support growth as an alternatives to bank funding, particularly for indebted firms.

“While external equity investment is only a viable option for a minority of firms, our research highlights that its use is growing,” he said.

“However, while many entrepreneurs voice concerns over the lack of equity funding, investors cite the absence of viable projects as a key barrier to investment.”

The conference, SME Financing: Recent Trends and Policy Options, was held at the Economic and Social Research Institute this morning.