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Been knocked back for a business loan? Well, here's some good news

The Credit Review Office has been overturning a lot of rejected applications.

Updated at 5.49pm

MORE THAN HALF of all Irish small and medium enterprises (SMEs) which thought they had been unfairly treated in dealings with their bank have had appeals to the lending umpire upheld.

The latest report from the Credit Review Office (CRO) said 56% of appeals to the government body had been successful so far and the findings had led to an extra €29.7 million in finance flowing to the sector.

SMEs or farm businesses which have had loan applications for up to €3 million either rejected or reduced can ask the umpire to step in and review the decision.

In his report, credit reviewer John Trethowan said the lack of banks lending to small businesses was “a concern” as enterprises which had got behind on previous payments would have trouble refinancing loans.

He said the lower competition also meant it was likely most refinancing would come with a higher interest rate than in the past.

Only the banks that were propped up in the Nama scheme – AIB, the Bank of Ireland and EBS, as well as the now-defunct Anglo Irish Bank and Irish Nationwide – have to participate in the CRO program.

Permanent TSB joining scheme, Ulster Bank still a maybe

However, Finance Minister Michael Noonan said Permanent TSB (PTSB), which will soon start writing up new loans to SMEs again, had agreed to join the process and Ulster Bank was “actively considering making a similar commitment”.

Trethowan said he was “surprised” by recent comments from Bank of Ireland chief Richie Boucher, who told an Oireachtas committee in April that one in three businesses whose loan rejections the CRO overturned had gone on to default on their repayments.

Like the banks, we most times get it right – but on occasion we may, given the risk and changing circumstances, support the applications of a few businesses which did not subsequently survive,” he said.

But he said the Bank of Ireland had never previously raised its concerns and the claim needed to be looked into further.

Microfinance loans should be increased

In a series of other recommendations, Trethowan said:

  • The government should consider increasing the limit on its microfinance loan scheme to as much as €100,000
  • SMEs and farmers should be discouraged from using their working capital for long-term investment as the economy picked up
  • Banks should be more supportive of the “long-term vision” between lenders and businesses, rather than focussing on short-term finance

He said the CRO had received 520 formal applications to date and 361 of those had been completed. Here’s what the results breakdown looks like:

Credit review Source: Credit Review Office

SMEs very dependent on bank loans

Chambers Ireland chief executive Ian Talbot said the introduction of the Strategic Banking Corporation of Ireland (SBCI), a new SME financier with an initial €800 million budget, and PTSB’s re-entry into the market would help business growth.

“However, there is still a significant cohort of SMEs who are unwilling or unable to invest in order to grow,” he said.

This is in many ways a lost opportunity for Ireland’s economic recovery, as these businesses would under normal economic conditions be in a position to expand, grow their profits, and take on new employees.”

Small Firms Association director Patricia Callan said local SMEs were very dependent on banks for their borrowing needs with over 90% of external finance coming from the major lenders.

“For Irish SMEs, supply of finance is second only to finding more customers as the most pressing issue we are facing,” she said.

READ: Why the state’s new investment bank will do little to help Irish SMEs >

READ: Irish small businesses are still too old-school when it comes to getting loans >

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About the author:

Peter Bodkin  / Editor, Fora

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