ISME welcomes new protections introduced for SMEs.
Issue of banks' over-reliance on personal guarantees must be addressed.
ISME, the Irish Small and Medium Enterprises Association, welcomed the new Central Bank Regulations for SME Lending announced today (18th December). The Association stated that it hoped the revised regulations would help to address some of the issues in the banking sector including the lack of transparency, poor communication and inadequate training that is endemic in our banks.
Mark Fielding, ISME CEO, commented, "ISME consulted with the Central Bank on this review as we believed many changes to the regulations were necessary. We called for better communication from banks and we requested that businesses get a full explanation when their loan applications are rejected. It is hoped that these changes will make banking for SMEs now more transparent".
"We are pleased to see that our recommendation for sector-specific training for bank staff has been introduced. There is currently a worrying lack of business knowledge within the banks and this is hindering lending. In addition the prohibition on banks to offer 'unsolicited credit' will guard against the return of the foolish lending practices of the early 2000's."
"The over reliance on the use of personal guarantees is, in many cases, overkill and their use is unjustified. SME owner managers should not, in all cases, be required to personally guarantee their private limited companies. While the Association's request that banks cease demanding personal guarantees for all loans was not successful, the practice should be reviewed and bankers should be educated and trained to assess an applicant company's ability to repay without the necessity for personal guarantees.
"Overall the new regulations are to be welcomed to ensure some semblance of 'fair play' for SME borrowers. We do welcome the extra protection for guarantors which has been included. It is also essential that these regulations, when combined into a Code, will be reviewed on a more regular basis to keep up to date with practice", concluded Fielding.