The onset of the economic crash in 2007 and 2008 was particularly harsh on Irish SMEs. Not only had they to contend with the steepest market downturn in living memory, they found sources of credit drying up just when they needed it most. As Close Brothers Commercial Finance managing director Ciaran McAreavey points out, there were 11 banks lending to SMEs in 2007 – six domestic and five from overseas – and this was reduced to five within a few years.
This fundamental change in the market was reflected in Central Bank SME lending figures, which showed total SME credit falling from €55 billion in 2010 to €30 billion in 2016. This was due to a combination of forced deleveraging by the main banks and SME owners actively paying down debt, according to McAreavey.
Fortunately, lenders like Close Brothers moved into the market to plug at least part of the gap. “Alternatives started to make themselves available, including ourselves,” says McAreavey. “We opened a Belfast office in 2007 and started cross-border trading almost immediately. Since then, we have played an important role in supplying credit to SMEs which wanted to grow or replace capital-intensive pieces of equipment.”
Close Brothers offers much quicker decision times than the main banks and is also willing to lend on second-hand assets. That’s a USP of ours,” McAreavey adds. “We can fund coaches and commercial vehicles out to 15 years of age; that’s an important source of liquidity for SMEs.”
The company also has expert valuers to assess more specialised assets such as CNC machine tools or lathes. This speeds up the lending process.
Another lender offering speedy decisions and funding for second-hand assets is First Ireland Finance. "People looking for asset finance at a certain level are not getting service or support," says sales director Ray Murphy. "Someone who needs a van usually needs it tomorrow. Our customers tell us it can take weeks for a bank to process an application for even quite a small loan amount. We can do it in days or even in hours."
Customers also have difficulty financing assets which are not new. “I was at a trade show recently and met a customer who is a landscaper,” Murphy recalls. “He wanted to buy a digger but didn’t want to buy a new one. He wanted to buy a second-hand one for €20,000, not a new one for €80,000. There is a problem for customers like that. Everyone wants to lend for brand new machinery. Not too many people are lending in that second-hand space but we are very happy to do that.”
Another lender active in this space is Convertibill, which provides businesses with a range of trade finance products including order finance, supplier finance, invoice finance, sales finance, distribution finance, and lease finance.
"Our customers tell us the banks' requirements, time to decision and the amount of information they need is a big barrier to approval," says Convertibill marketing manager Damian Kenny. "That's why most choose Convertibill. We can provide finance where the banks won't and because we are smaller, we can approve faster. Also, our customers know where they stand at all times and they are not locked into onerous contracts with punishing exit clauses. Where a bank might take three weeks to make a decision, we will make it in a matter of days."
A growing number of SMEs are also looking towards crowdfunding or, more accurately, peer to peer (P2P) lending to meet their credit needs. P2P lender Linked Finance has made €21 million in loans available to Irish businesses since 2013, according to head of marketing Alan Fagan. "We set ourselves apart through speed and ease of access," he says. "Our loans range between €5,000 and €250,000 and businesses can apply online inside two minutes. We don't ask for business plans for five years or anything like that. We just look for two sets of documents – the last set of filed accounts and six months' bank statements. The applicant uploads the documents and it takes us eight working hours to make a credit decision."
This is not to say the credit approval process is lax. “It is still a rigorous evaluation process, it’s just quicker,” Fagan explains. “Once approval is in place we let them know the rate that applies to their loan request and then put it up on the marketplace. Many are funded instantaneously, with larger loans taking a bit longer. The average is four days from application to funding.”
With these alternatives and others such as Microfinance Ireland available to SMEs, the credit situation is certainly brighter than it was in 2008 – but we've still got a long way to match the UK , where small firms have between 50 and 60 lenders competing for their business.