SME demand for bank credit increased from 35% to 41%.
Lack of competition and lack of adequate staff training slowing recovery.
Personal guarantees preventing companies sourcing additional finance.
Access to credit continues to be a pivotal issue for SMEs.
ISME, the Small and Medium Enterprises Association, released its latest Quarterly Bank Watch Survey today (7th March). The survey results show that refusal rates have decreased slightly and the demand for bank credit has increased. The Association welcomed both of these findings as a reflection of the improving economic situation but warned that refusal rates are still too high and there is much more progress needed in this area.
There have been improvements in the time taken to make decisions and in the number of decisions pending as well as the awareness of government assistance among SMEs. In addition more SMEs have approached their banks for funds than in the previous quarters.
Commenting on the results of this quarter’s survey, ISME CEO, Mark Fielding said, “We are pleased to see a small improvement in bank credit refusal rates in this quarter (from 48% to 43% rejection rate) and we hope that this is the beginning of sustained progress on this issue. Recent results have seen us take two steps forward just to fall one step back as it seems the banks are not able to deliver consistent improvements in this area. This remains a vital issue for the SME sector and will be particularly pertinent as small businesses go for growth, now that we have finally entered a period of recovery.”
Concerns were also expressed about the level of guarantees that small business are required to produce, which in many cases are well in excess of the amount required. In 41% of cases the guarantee was not returned after the loan was paid off, creating a significant barrier for companies in accessing additional or alternative finance.
“Much of the problem here stems from inadequate training of bank staff that do not have the necessary skills and expertise to analyse businesses proposals. As a result of this inadequacy and the fear of ‘making a mistake’, risk is not being properly analysed personal guarantees are being demanded and loans are being refused.”
“The lack of awareness among bank staff of the SBCI funds and the Credit Guarantee Scheme means that SME businesses remain unaware of their existence. This loan funding must be better promoted to SMEs as there is an onus on banks to inform loan applicants of its existence.”
The headline statistics are as follows:
41% of respondents had required additional or new bank facilities in the last 3 months, compared with 35% in the previous quarter.
43% of companies who applied for funding in the last three months were refused credit by their banks, a decrease on the 48% refusal rate, seen in the previous quarter.
Just over one in ten applications were partially successful. (11%)
15% of decisions are pending, an improvement on 19% in the previous quarter.
33% of initial bank decisions were made within one week; an increase from the 22% in the previous quarter.
On average, the initial decision time is now just over 4 weeks. The wait to drawdown has decreased from 3 weeks to 2 weeks.
55% of those who required funding made a formal application, a decrease from 61% in the previous three months.
Informal applications are now at 83%.
8% of respondents who required bank finance did not apply for various reasons, down from 14% in the previous quarter.
51% of respondents are customers of their bank for over 20 years, while 81% are over 5 years.
Of the 57% approved for funding, 68% have drawn down the finance either fully or in part.
45% of requests were for term loans, with 40% for overdrafts, or alterations to existing facilities, while invoice discounting/factoring accounted for 6% of requests, with 17% requesting leasing.
32% of respondents had increases in bank charges imposed. 21% have suffered increased interest rates.
72% state that the Government is having either a negative or no impact on SME lending.
Awareness of government assistance remains high. 79% are aware of the Credit Review Office, while 60% are aware of the Credit Guarantee Scheme and 55% know about the Micro Finance scheme.
The survey, conducted in the last week of February, covers the three months of December, January and February. There were 1160 SME owner manager respondents, a response rate of 12%. This provides a strong indication of the real SME lending environment.
Required change in bank facilities in last 3 months
Made Informal Approach.
Made Formal (written) Approach.
Banks making more difficult access finance
Aware of Banks’ appeals procedure
Aware of the Credit Review Office.
Aware of Credit Guarantee Scheme
Aware of Micro Finance Scheme
The Association, called on the Government to:
Ensure that the revamped Government Guarantee Scheme is put in place immediately.
Demand that SBCI funds are promoted by banks and used appropriately for SMEs.
Increase promotion of the Credit Guarantee and Microfinance schemes.
Demand outsourcing of better management for bailed-out banks to oversee their lending policies.
Ensure honest and reliable reporting from the rescued banks, through the Department of Finance and Central Bank.
Investigate other sources of finance that can be made available to viable cash starved SMEs.
“It is essential that the bailed out banks get back to normal prudent lending as soon as possible. Funding issues for SMEs seemed to slip off the table during the election and must now be made a priority issue”, Fielding concluded.