Credit demand declines among SMEs

Small and medium sized enterprises have reported an improvement in trading conditions for the six months to the end of September, with 34 per cent recording an increase in turnover, according to a new survey.

The survey, conducted by Red C on behalf of the Department of Finance, showed 72 per cent of SMEs said their turnover had increased or remained stable in the six month period, while 21 per cent of firms had increased staff numbers.

Demand for credit was low during the period, with less than two in five of the 1,500 SMEs surveyed applying for loans, with micro firms driving the decrease in demand.

However, excluding applications that were still pending, some 80 per cent of the requests made were granted, a 4 per cent improvement on figures from March 2013.

The survey found the average time from loan application submission to a decision had improved, with 57 per cent of firms getting an answer within 15 days. However, the average time remains longer than the 15 days target set by the current code of conduct for business lending.

Small Firms Association acting director Avine McNally said a worrying trend from the survey is that more conditions are being attached to credit approvals, with 78 per cent of respondents who had credit approved stating that conditions were attached.

“It is critical that in providing finance to the small businesses that the cost of credit is not too high and that loan terms and conditions are clear and manageable and do not act as a deterrent for business survival and investment.”

She noted that the majority of applicants (73 per cent) who have been declined credit don’t agree with the decision. In addition, the time for a decision averaged 21 working days, with just over half of the applications processed within the target of 15 days.

Minister for Finance Michael Noonan said small businesses that require credit should not be reticent in approaching the banks and viable businesses plans in the context of a recovering economy should provide the strong support necessary for their applications for credit.

“If refused credit, SMEs should avail of the services of the Credit Review Office, which is overturning approximately 55 per cent of cases referred to them.”

The IBF’s Felix O’Regan said the research points to a number of key trends which are heading in the right direction, while also indicating the challenges that remain – not least in the transition for many of our SMEs from the survival stage to the growth stage.