SME demand for bank credit reduced from 38% to 36%
Formal applications decline.
ISME, the Irish Small and Medium Enterprises Association, released its Quarterly Bank Watch Survey (Q4) today (2nd December). The survey shows that there are improvements in the area of refusal rates, having dropped to their lowest in eight years. However, the Association expressed its concern at the length of time it is taking for business owners to get an approval on loans and accessing credit.
ISME, CEO, Neil McDonnell said “Todays results shows a mixed picture. It is welcome to see a drop in the refusal rate, however this figure is still far too high. SMEs account for nearly all active enterprises, employ almost two thirds of the total workforce and account for nearly half of all net job creation in Ireland, they are the engine behind our recovering economy. It is vital that our banks support and assist the SME sector”.
“There are two issues of concern. The decline in formal applications and the continued delay in decision time by banks on lending. Government, regulators and relevant stakeholders must create a greater awareness of alternative finance.”.
Adding “The drop in formal applications is linked with the decline in business and consumer sentiment over the course of the last several months. Consumer sentiment is at a 20 month low. SMEs are aware of the challenges ahead in this post-Brexit environment. Banks should be making the process of acquiring credit transparent, easy and quick”.
The main findings from the 1,128 respondents in the last week of November are as follows:
36% of respondents had required additional or new bank facilities in the last 3 months, compared with 38% in the previous quarter.
30% of companies who applied for funding in the last three months were refused credit by their banks, a decrease on the 36% (Q3).
20% of applications are awaiting decisions at end of November, an improvement from the 26% at end of August.
On average businesses are waiting 4 weeks for an initial decision to be made on loan applications. From then the wait time for drawdowns remains at 4 weeks.
20% of initial bank decisions were made within one week; a decrease from the 23% in the previous quarter.
57% of those who required funding made a formal application, a decrease from 63% in the previous three months, while informal applications are now at 77%.
Of the 70% approved for funding, (10% of whom were partially successful), 58% have drawn down the finance either fully or in part.
There was an increase in requests for term loans at 56% (last quarter 52%), overdrafts are down at 27% (down from 38% in Q3).
Invoice discounting/factoring increased marginally from 4% to 5%, with 19% requesting leasing up from 9% in Q3.
54% claimed bank fees and charges are a cause of concern, this is on par with Q3, with 49% stating that their bank charges are not fully explained (52% in Q3).
70% state that the Government is having either a negative or no impact on SME lending, an increase from 67% on the previous quarter.
Awareness of government assistance has increased. 78% (74% in Q3) are aware of the Credit Review Office, while 68% (59% in Q3) are aware of the Credit Guarantee Scheme and 62% (55% in Q3) know about the Micro Finance scheme.
The Association, called on the Government to:
Ensure that the SBCI funds are promoted by banks and used appropriately for SMEs.
Finalise the restructuring of the re-vamped Government Credit Guarantee scheme and promote it and the Microfinance scheme.
Ensure honest and reliable reporting from the rescued banks, through the Department of Finance and Central Bank.
Investigate other sources of finance that can be made available to viable cash-starved SMEs.
“Having timely access to finance is vital for the stability, growth and productivity of a business. Unnecessary delays in accessing finance can have a major impact on the running of a business. If our economy is to fully recover Government and banks need to fully get behind the SME sector”. Concluded McDonnell.