Lenders ease credit flow to previously ‘unbankable’ micro-businesses

MicroFinance Ireland, the State-backed lender for often unbankable micro-businesses, has seen a number of approved borrowers going back to their original banks in the last six months to secure funding, in a sign that mainstream lenders are easing credit flows to small companies.

"This year we have seen a new phenomenon where would-be customers have gone through the whole process with us, only to do a deal with the banks," Garrett Stokes, says chief executive of MicroFinance Ireland, which was set up in 2012 and offers loans of up to €25,000 to new and existing small businesses in the Republic.

Mr Stokes estimates that about 10 per cent of customers behind undrawn, approved loans are now going back to their banks and receiving funding there.

"We require our applicants to give us business plans," Mr Stokes told The Irish Times. "It forces them to actually capture in a few paragraphs the essence of their business and how it will operate.

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“We’ve 26 external credit assessors around the country who have face-to-face contact with all the applications. A lot of them are ex-bankers and they put in a lot of work with potential customers.”

Better pitch

Mr Stokes said MicroFinance Ireland is finding increasingly that customers are now going back to their banks and getting finance with a better pitch, having been through his firm’s process.

“In many ways, I’d see that as a further sign of success for MicroFinance Ireland,” said Mr Stokes. The company has issued €19 million of loans to date to 1,300 small- to medium-sized enterprises (SMEs).

SME lending fell by 2.9 per cent last year and has more than halved since 2010, as companies continued to repay loans at a faster pace than they are taking out new borrowings, according to Central Bank data.

Last week, the Department of Finance published the results of its latest SME credit demand survey, which found that 20 per cent of small companies sought credit between October and March and, within that, 88 per cent of complete applications were approved or partially approved.

However, only 45 per cent of respondents believe that banks are lending to SMEs.