Increased demand for SME lending to 44%, highest since May 2009.
Reduction in refusal rate to 42% in three months to end of August.
High number of Formal Applications bears fruit.
Delays in bank decisions, as 21% of applications still pending.
ISME, Tuesday, 2nd September 2014.
The latest ISME Quarterly Bank Watch Survey released today (2nd September) by the Irish Small & Medium Enterprises Association, shows an increased demand for bank credit and a welcome reduction in refusal rates in the three months to end of August. The Association welcomed the increase in SME formal applications but called on the banks to improve their decision time and also called for an increase in promotion of the Government Partial Guarantee scheme and the Microfinance scheme.
Commenting on the results of the survey, ISME CEO, Mark Fielding, said “Small and medium businesses must be able to access bank funding if they are to take advantage of the current economic gains. SMEs have been struggling to access credit, due to a high refusal rate, so this decrease from 52% to 42% is very welcome, though long overdue. A notable and promising finding is the increase in formal applications from 53% to 72%. The Association has been encouraging owner-managers to make formal applications, as this greatly increases the likelihood of success. Informal applications have decreased from 83% to 71%, further proof of a shift towards the recommended formal route when approaching the bank.”
The survey, conducted in the week ending 29th August had 822 owner managers of SMEs respond, a rate of 11%. This provides a strong indication of the real SME lending environment. The headline statistics are as follows:
42% of companies who applied for funding in the last three months were refused credit by their banks, a big improvement on the 52% refusal rate, seen in the previous quarter.
44% of respondents had requested additional or new bank facilities in the last 3 months, an increase from 32% in the previous quarter.
72% of those who required funding made a formal application, an increase from 53% in the previous three months.
Informal applications have decreased from 83% to 71% since the previous survey.
18% of initial bank decisions were made within one week; a deterioration from the 20% in the previous quarter.
On average, the initial decision time has increased to just over 6 weeks with the wait to drawdown at a further 3 weeks.
12% of respondents who required bank finance did not apply for various reasons, a one percent increase over the previous quarter.
51% of respondents are customers of their bank for over 20 years, while 89% are over 5 years.
Of the 58% approved for funding, only 66% have drawn down the finance either fully or in part, an increase from 43% in the previous quarter.
53% of requests were for term loans, with 45% for overdrafts, or alterations to existing facilities, while invoice discounting/factoring accounted for 8% of requests, with 12% requesting leasing.
35% of respondents had increases in bank charges imposed, while 21% have suffered increased interest.
Reductions in overdrafts were demanded of 21% of SMEs, down from 26% in the previous quarter.
69% state that the Government is having either a negative or no impact on SME lending.
72% are aware of the Credit Review Office, while 62% are aware of the Credit Guarantee Scheme and 40% know about the Micro Finance scheme, down from 44% in previous quarter.
77% of owner/managers are in favour of an alternative Strategic Investment Bank.
Only 40% of respondents are aware of the code of conduct for business lending to SMEs, however this has increased from 32% in the previous quarter.
“Two cautionary findings are that over one fifth of all applications are still pending at time of survey and the average decision times have increased to in excess of six weeks. This is a long time for the potentially job-creating expansion plans of a business to sit in limbo. Banks must become more efficient in dealing with credit requests. It is not acceptable that the bailed-out banks are delaying economic recovery through their unproductive and slow work rates.” The Association, called on the Government to:
Demand honest and reliable reporting from the rescued banks, through the Department of Finance and Central Bank.
Ensure that competent bank lending officials are available to SMEs.
Introduce immediately the alternative bank/fund (SBCI) to release working capital funds to SMEs.
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 re-vamped Government Partial Guarantee scheme and the Microfinance scheme.• Use the Partial Guarantee scheme to bridge funding gaps in businesses attempting to rehouse loans from the ‘deserting’ and ‘withdrawing’ banks.
Outsource better management for bailed-out banks to oversee lending policy and its activity.
“While it is too early to say that a corner has been turned in bank lending, the success rate for SME lending applications has increased and must be welcomed. However the delays by the banks in making decisions must be improved immediately, as hold-ups due to incompetent bankers can delay the growth plans of business”, Fielding concluded.