New lending to SMEs declines as €60m Covid scheme gets approval

New lending to small and medium-sized businesses fell by 20 per cent last year, as companies sought to use their own funds to get them through the Covid crisis.

An aversion to taking on further debts was also a factor in the decline in applications for credit to financial institutions, a new Central Bank report shows.

The news comes as the European Commission on Tuesday rubberstamped a new State-backed €60 million scheme to SMEs affected by the Covid crisis this year.

According to the Central Bank’s study, which covers the March to December period reveals 18 per cent of SMEs applied for credit versus 20 per cent in 2019 with the majority of those applying doing so for working capital needs.

Call for proposals to rescue small businesses to focus on those with viable futures

---

Covid-19: Five crucial factors behind an economic recovery

---

Biden’s ‘global minimum’ tax rate carries big dangers for Ireland

---

US tax plans for multinationals could reduce Ireland’s lure

---

The rate of rejection for credit applications, at 15 per cent, was mostly unchanged to previous years, but rejections for part of the requested amount increased.

Banks reported tightening credit standards for SMEs but a loosening of standards for guaranteed lending upon the introduction of the Credit Guarantee Scheme in the second half.

Turnover

Almost two thirds of SMEs in Ireland had declining turnover on net, and while many have adjusted to this via reduced expenditure and the use of State supports, turnover declines have only partially been offset, with companies making losses on average in 2020.

Further losses are expected to accumulate until the pandemic recedes, the Central Bank said.

The report’s publication coincides with approval from the European Commission of the Small Business Assistance Scheme for Covid.

Applications for the scheme opened early last month. It is available to SMEs with a turnover between €50,000 and €25 million and who employ 250 people or less and not eligible for support under direct sectoral grants.

Under the scheme, direct grants of up to €4,000 for the first quarter of 2021 are payable to help businesses with fixed costs. A second quarter payment also possible.

The revenues of businesses applying for the grant must be no more than a quarter of the average weekly turnover of the business in 2019 during the claim period.