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The funding 'hunger march': over half of companies refused bank credit

Banks are ‘sugar-coating’ the acceptance figures, while the Government watches on, ISME said.

Image: Laura Hutton/Photocall Ireland

OVER HALF OF companies applying for bank loans in the first three months of the year had their applications refused

A new survey by the Irish Small and Medium Enterprises association (ISME) found that 52 per cent of companies were refused, down marginally on the 54 per cent refusal rate in the last quarter of 2013.

ISME chief executive Mark Fielding said that SMEs are on a finance ‘hunger march’.

How can we even hope to beat the recession when our SMEs are being refused bank loans and even when ‘lucky enough’ to get a loan, are hit with over-stringent collateral requirements and higher interest rates?

He said that acceptance rates published by banks are ‘sugar-coated’, and called on the Government to exert more pressure on banks to lend to SMEs.

Application rates down

Dispirited SME owners are turning to banks less and less, the survey also revealed.

Only 32 per cent of respondents had applied for a loan so far this year, down from 39 per cent in the previous three years. It is the lowest level since June of 2011.

Just under half of the respondents said that they were discouraged by their bank from making an application.

Fielding criticised the staffing standards in bank branch networks throughout the country, referring to relationship managers as “yellow pack”.

“They can’t read a set of figures, are frightened by the word risk and scared to make a lending decision for fear of career reprisal.”

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Bank reliance high

ISME called on the Government and the central bank to rush through the €500 million Strategic Bank Corporation in the immediate future, and to look at ways of introducing non-bank finance options for SMEs.

Pointing out that Irish small businesses are reliant on bank finance for 60 per cent of their funding needs, compared to an EU average of 39 per cent, Fielding argued that the financial fragility of the sector must be solved as a priority.

“It is…important that alternative sources of finance and alternative methods of financing are encouraged for Irish SMEs. In essence, as well as right-sizing their business, SMEs must begin to ‘right-size’ their finances.”

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About the author:

Jack Horgan-Jones

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