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Wherever you go, it’s not easy being an SME

Evidence from other countries shows that access to finance can prove very difficult for small companies

The European Commission has said that “difficulties in accessing finance are one of the main obstacles obstructing the growth of SMEs”. Photograph: iStock

The European Commission has said that “difficulties in accessing finance are one of the main obstacles obstructing the growth of SMEs”. Photograph: iStock


Far away fields always appear greener. One of the most oft repeated laments in Irish business is “if only Ireland could be more like . . .” But sometimes it is wise to be careful what we wish for, and that is particularly the case when it comes to finance for SMEs.

For example, according to the British Business Bank – Small Business Finance Market Report 2015 there was a £1 billion annual funding gap to be bridged to boost the SME market in the UK. That situation has led to UK government to consider legislation to address the situation.

The UK Department of Business, Innovation & Skills has revealed a high rate of rejection of business loan applications by SMEs. “Many SMEs only approach the largest banks when seeking finance. Although a large number of these applications are rejected – in the case of first-time SME borrowers the rejection rate is around 50 per cent – a proportion of these are viable and are rejected simply because they don’t meet the risk profiles of the largest banks.”

This has led to significant growth in the peer to peer (P2P) business lending and funding market in the UK. According to a report by Let’s Talk Payments, equity crowdfunding grew by more than 400 per cent between 2012 and 2014. P2P business lending supplied the equivalent of 13.9 per cent of new bank loans to small businesses in the UK in 2015 with Crowdcube, LendInvest, Zopa, Funding Circle, Crowdstacker and Novicap being among the key players in the alternative lending market in the UK.

Things aren’t a lot better in the US. The American Dream Gap Report, produced by US business credit ratings firm Nav, shows that 53 per cent of American small businesses had applied for funding or credit lines over the past five years and more than 25 per cent of them said they had sought loans on several occasions. One fifth of those applying reported being turned down, and 45 per cent of those denied said they’d been rejected more than once. Moreover, almost a quarter of those rejected didn’t know why they’d been denied and had no real way of finding out.

Interestingly, this quite high rejection rate has led to many of the business owners using personal savings and credit cards to fund their businesses while 10 per cent of them had to turn to family and friends for help.

Europe isn’t all that different, with the European Commission stating that “difficulties in accessing finance are one of the main obstacles obstructing the growth of SMEs”.

Steps are being taken in some countries to improve the situation, however. In France, for example, the then economy minister and current presidential hopeful Emmanuel Macron launched a fund to help funnel institutional investors’ money to SMEs last year. The PME Emplois Durables (SME Sustainable Jobs) is a €210 million fund sponsored by insurers and social protection groups AG2R La Mondiale and Klesia, with the support of the French Employers Movement, and the backing of the government.

The global situation is uneven to say the least, with some companies reporting an improvement in funding availability while others say the opposite. A report published last year by financial software solutions company Misys showed there was a growing gap between companies that could gain access to financing and those that couldn’t.

In the report, The Needs of SMEs: Working Capital Challenges and Digital Solutions, 33 per cent of respondents stated they were finding access to financing easier but 28 per cent said it was becoming more difficult. According to the report, banks are still shying away from assisting smaller companies, and SMEs continue to struggle with establishing any strong connections with banks.

Of course, none of this is to suggest that Irish SMEs should be satisfied with their lot. It’s just that we shouldn’t think that there are any ready solutions awaiting us in other countries.