Almost half of SMEs refused credit by banks in past 3 months

Just under half of the companies who applied for funding in the past three months were refused credit by their banks, according to figures from the latest quarterly survey by ISME, a representative body for small and medium-sized firms.

Some 48 per cent were refused credit in the three months to the end of November, up on the 45 per cent refusal rate in the previous quarter.

"We are back to a situation where almost half of SME credit applications are being rejected," said ISME chief executive Mark Fielding. "This prevents small businesses from capitalising on the economic recovery and the development of their businesses.

Lacking expertise

“In many cases we are finding that the risk-averse banks have not trained their officials appropriately and they do not have the necessary expertise to analyse funding proposals. Innovative SMEs with new or niche products cannot then access funding and good ideas are being postponed or discarded.

“We have now seen refusal rates increase for two successive quarters. It is imperative that Government acts now to ensure that the State-owned banks are lending appropriately for a growing economy.”

Mr Fielding said a lack of expertise within banks was also leading to an “over-reliance on personal guarantees” to secure funding.

Some positive news was revealed by the survey. Awareness of State assistance such as the Credit Guarantee Scheme (at 64 per cent) and Microfinance Ireland (60 per cent) was high.

Formal applications

“Additionally, the numbers of SMEs who are making formal applications [at 61 per cent] to their banks is increasing,” Mr Fielding said.

The ISME survey found that 35 per cent of respondents had required additional or new bank facilities in the past three months, compared with 41 per cent in the previous quarter.

Of the 52 per cent approved for funding, three-quarters have drawn down the finance either fully or in part, ISME said.

Half of the respondents had been customers of their banks for more than 20 years, while 87 per cent were customers more than five years.

The survey covered the September to November period. Some 1,112 SME owner-managers replied, a response rate of 11 per cent.