Minister for Finance, Mr. Michael Noonan, TD, publishes independent report on the demand for credit by Small and Medium Enterprises (SMEs)
The independent report commissioned by the Department of Finance on the demand for credit by Small and Medium Enterprises (SMEs) published today shows:
36% of SMEs surveyed requested bank credit in the period April-September 2011.
When applications pending were excluded, 70% of those requests were approved.
In relation to the 64% of SMEs who did not request bank credit in this period:
80% did not need credit or had sufficient internal reserves,
While 7% believed the banks were not lending.
During the review period, 48% of SMEs reported a decrease in turnover while 26% reported an increase.
Welcoming the report for the further clarity it brings to the pattern of credit demand by the important SME sector, the Minister for Finance, Michael Noonan TD said:
“This report will further enhance the ability of my Department, along with the Credit Review Office, to understand the business environment in which SMEs operate and their relationships with the banks. The results of this survey will be a valuable resource in informing policy decisions in this area and will be of benefit to all stakeholders.
I am determined that the lending targets set by the Government for the two domestic pillar banks for the three calendar years, 2011 to 2013, will be achieved. In order for these targets to be met, I would encourage SMEs to approach the banks with viable business plans. SMEs should seek the available assistance from Government Agencies, such as Enterprise Ireland and the County Enterprise Boards, in order to ensure that their business plans are developed as far as possible.
The Government recently announced details of a Micro Finance Loan Scheme and a Temporary Partial Credit Guarantee Scheme to assist viable SMEs on the margins of commercial lending decisions in accessing additional credit. These Schemes will be in place from the first quarter of next year, and will be particularly welcome in light of the findings of this report in relation to micro-enterprises.
It is vital that the banks continue to make credit available to support economic recovery. However, it is not in the interest of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed.”
The Minister thanked all of those involved in preparing the report, particularly the small and medium sized enterprises that took the time to engage with the market research company in providing this essential information on credit demand amongst this important sector in the economy.
29th November 2011
Notes for Editors
Key Conclusions of the Report
Demand for Credit
36% of SMEs requested credit
64% did not request credit
Most demand was for cash flow and working capital purposes.
Reasons for not requesting credit
80% did not need it or have sufficient internal reserves/funds
7% thought or believe the banks are not lending
Decisions on credit
54% of credit applications were approved
23% of credit applications were declined and
23% of credit applications are still pending.
The decline rate was highest for Micro enterprises at 35%.
When the pending applications are excluded, the approval rate is 70% and 30% declines.
78% of SMEs who were refused credit did not agree with the reason provided by the bank for the refusal. The timeframe for making decisions has increased significantly with only half the requests being processed with 15 days. This is the time limit after which a borrower can treat the failure to decide as a “constructive refusal” to go to the Credit Review Office.
In 76% of cases where formal applications were declined, the bank did not inform the borrower of the right to internal review.
Awareness of Credit Support
65% of SMEs were aware of the existence of the Credit Review Office, while 57% were aware of the Code of Conduct for Business Lending to SMEs.
Bank of Ireland and Allied Irish Bank Lending Commitments
Bank of Ireland and AIB agreed in July to fund an independent review on credit demand by SMEs, which was commissioned by the Department of Finance following a public tender competition.
The review covered the six month period from April 2011 to September 2011.
The review examined the demand for credit through a telephone survey covering over 1,500 businesses. The survey was of high quality, drew a carefully constructed sample from a large database of SMEs, made repeated calls to ensure a full response and asked factual questions. The full questionnaire is included in the report.