Demand for SME lending up to 37% from 36% in previous quarter.
59% of firms say banks making it more difficult to access finance.
Only 5% of SMEs satisfied with Government intervention in SME lending.
Delays in bank lending decisions used as a cynical smokescreen.
Improvement from 5 to 4 weeks for initial decision still too long.
Cost of banking continues to increase.
ISME, the Irish Small & Medium Enterprises Association, released the results of its latest ISME Quarterly Bank Watch Survey today, (2nd December). The survey results show a disappointing, though improved, 50% refusal rate for SME loan applications. This improved rate is clearly inadequate and continuing access to credit issues will hinder SMEs growth and expansion rates in the New Year if the government does not effectively intervene immediately.
984 owner managers of SMEs responded to the survey, conducted in the week ending 29th November, a response rate of 11%, provides a strong indication of the real SME lending environment. The headline statistics are as follows:
50% of companies who applied for funding in the last three months were refused credit by their banks, an improvement down from the 58% refusal rate seen in the previous quarter.
37% of respondents had requested additional or new bank facilities in the last 3 months, an increase from 36% in the previous quarter.
15% of initial bank decisions were made within one week; a slight improvement from the 14% in the previous quarter.
On average, the decision time has reduced from 5 to 4 weeks to get a decision.
10% of respondents who required bank finance did not apply for various reasons.
Of those 23% were actually discouraged by bank from making application and another 62% were afraid of a reduction in existing facilities.
89% of respondents are customers of their bank for over 5 years, while 49% are over 20 years.
Of the 50% approved for funding, 57% have drawn down the finance either fully or in part.
44% of requests were for term loans, with 40% for overdrafts, or alterations to existing facilities, while invoice discounting/factoring accounted for 5% of requests, with 15% requesting leasing.
50% of respondents had increases in bank charges imposed, while 10% have suffered increased interest.
Reductions in overdrafts were demanded of 28% of SMEs, down from 31% in the previous quarter.
71% state that the Government is having either a negative or no impact on SME lending.
While 56% of respondents are aware of the Credit Guarantee Scheme, 36% know about the Micro Finance scheme, up from 28% in previous quarter.
78% of owner/managers are in favour of an alternative Strategic Investment Bank.
According to ISME CEO, Mark Fielding, “As the Troika depart and evidence of tentative economic progress is appearing, the reasonable expectation is that the country will start to gain momentum. However, without reasonable and fair access to credit, SMEs will not be able to fulfil their role of driving growth. The results of this survey demonstrate, quite categorically, that the banking system for SMEs is still not working, despite the deceptive and misleading advertising by the bailed-out banks. The banks continue to stall progress by prioritising their own selfish interests over those of the wealth-generating SME sector. While it is critical to restore the Irish banking system to health, it cannot be done at the expense of the SME sector and its employees.”
“The shrinking Irish banking system is not fit for purpose in providing an adequate retail service or development fund for Irish SMEs. The decision of Danske Bank to exit the market, immediately after Rabobank’s similar retreat, is a further blow to SME banking prospects. Many SMEs are now having problems refinancing loans when their original banks have scarpered from the Irish market. The two so-called pillar banks are required by the State to sanction €4bn in lending to SMEs this year, but less than one-third of the sanctions are for new lending, 24% of which is for farming with the balance effectively a refinancing of existing debt.Lengthy decision times are a further impediment to SMEs and often amount to a constructive refusal.” The Association, called on the Government to:
Demand honest and reliable reporting from the rescued banks, through the Central Bank.
Develop the alternative bank/fund – a Strategic Investment Bank/Fund to introduce competition.
Investigate other sources of finance that can be made available to viable cash starved SMEs.
Increase in SME finance availability, by insisting on adherence to bank bail-out conditions.
Increase promotion of the government Partial Guarantee scheme and the Microfinance scheme.
Install better management in bailed-out banks to oversee lending policy and its activity.
“The fact that 71% of owner-managers believe that the government is having either a negative or no impact on SME lending is a leading indicator and an indictment of the efforts of this administration. The government must intervene in a much more robust manner to ensure that any resurgence in the economy can be sustained through adequate bank lending”, concluded Fielding.