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Half of SMEs seeking loans from banks in past three months were turned down

Majority of those who answered ISME survey claim the Government is having no positive effect in making banks extend credit to SMEs.

Image: morebyless via Flickr.com

BUSINESS REPRESENTATIVE GROUP ISME has said today that banks are continuing to ignore Government demands to open up lending to small and medium-sized businesses.

ISME has just released its Quarterly Bank Watch Survey which shows that 52 per cent of small and medium-sized businesses who applied for loans to their financial institutions in the last three months were refused credit. This figure is slightly down from the previous quarter, when 58 per cent of funding applications were refused. It also excludes agriculture-related businesses.

Finance Minister Michael Noonan laid out directives for the bailed-out banks in the Budget last week in terms of lending to SMEs. He said:

We have set the two pillar banks ambitious SME lending targets of €3 billion each this year, €3.5 billion each next year and €4 billion each in 2013. By making this credit available, we are supporting increased activity in a key sector for job creation.

ISME’s Chief Executive Mark Fielding said that the survey had shown that their group’s members were not confident that Government directives were having any impact on the extension of credit to SMEs. He said that this was “not surprising, as the bankers have been giving the Government the run around, with their spin, obfuscation and downright lies, for a number of years”.

He said that the Government needed “to stop merely acknowledging that there is a problem with SME lending and to take action”. The actions ISME recommends include making bankers report on their level of lending to SMEs directly to the Central Bank rather than through the Credit Review Office. Fielding called the Office a “waste of time” as it is “funded by the banks and staffed by bankers”.

The survey found that in the period from the beginning of September to the end of November:

52 per cent of companies surveyed who applied for loans from banks were refused them

Of the requests for funding

  • 36 per cent of those surveyed had applied for additional or new bank facilities in the last month
  • 66 per cent said banks were making it more difficult for SMEs to access funding
  • 88 per cent have been customers at their banks for over 5 years; 20 per cent had been at their banks for over 20 years
  • 92 per cent said that the Government had either a negative impact or no impact on SME lending
  • 18 per cent of companies surveyed had changes made to their bank facilities; 45 per cent of this portion had their overdraft reduced
  • 38 per cent saw an increase in bank charges and 23 per cent an increase in their interest rate
  • 54 per cent of those who answered the survey were micro-businesses, 35 per cent were small businesses; 11 per cent were medium businesses.

Fielding said that as well as reporting to the Central Bank, banks should also introduce the Partial Guarantee scheme, the Microfinance scheme and the Strategic Investment Bank without delay.

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