SME demand for bank credit reduced from 41% to 35%.
Lending environment becoming more difficult for SMEs.
At the release of the latestISME, Quarterly Bank Watch Survey today (7th December), the Association criticised banks for making it more difficult for SMEs to access loan funding. The survey results show that refusal rates have increased for the second consecutive quarter. This disappointing reversal on previously seen improvements is a huge hindrance to SME growth and to the economic revival.
Commenting on the results of this quarter’s survey, ISME CEO, Mark Fielding said, “We are back to a situation where almost half of SME credit applications are being rejected. This prevents small businesses from capitalising on the economic recovery and the development of their businesses. In many cases we are finding that the risk averse banks have not trained their officials appropriately and they do not have the necessary expertise to analyse funding proposals. Innovative SMEs with new or niche products cannot then access funding and good ideas are being postponed or discarded”.
“The lack of bank expertise is leading to an over-reliance on personal guarantees to secure funding. It is high time that our bailed-out bankers learned of ‘risk assessment’ and lending criteria without the double guarantees of business collateral and personal guarantees.”
“The survey has some positive pieces of information, for example, awareness of state assistance such as the Credit Guarantee Scheme and Microfinance Ireland is quite high. Additionally, the numbers of SMEs who are making formal applications to their banks is increasing. This is important as it means their application is officially recorded and not just forgotten in the way that informal applications are. However, the decrease in demand (35% from 41%) is a worrying sign and hopefully a seasonal factor.”
The headline statistics are as follows:
35% of respondents had required additional or new bank facilities in the last 3 months, compared with 41% in the previous quarter.
48% of companies who applied for funding in the last three months were refused credit by their banks, an increase on the 45% refusal rate, seen in the previous quarter.
19% of decisions are pending, down 21% from the previous quarter.
22% of initial bank decisions were made within one week; an improvement from the 28% in the previous quarter.
On average, the initial decision time has increased to just over 4 weeks. The wait to drawdown has decreased from 3 weeks to 2 weeks.
61% of those who required funding made a formal application, an increase from 49% in the previous three months.
Informal applications are now at 77%.
14% of respondents who required bank finance did not apply for various reasons, up from 11% in the previous quarter.
50% of respondents are customers of their bank for over 20 years, while 87% are over 5 years.
Of the 52% approved for funding, 74% have drawn down the finance either fully or in part.
53% of requests were for term loans, with 37% for overdrafts, or alterations to existing facilities, while invoice discounting/factoring accounted for 16% of requests, with 14% requesting leasing.
42% of respondents had increases in bank charges imposed. 8% have suffered increased interest rates.
63% state that the Government is having either a negative or no impact on SME lending.
The survey, conducted in the last week of November, covers the three months of September, October and November. There were 1,112 SME owner manager respondents, a response rate of 11%. This provides a strong indication of the real SME lending environment.
The Association, called on the Government to:
Ensure that the SBCI funds are promoted by banks and used appropriately for SMEs.
Increase promotion of the re-vamped Government Credit Guarantee scheme and Microfinance scheme.
Investigate the increasing delays in decisions by the rescued banks.
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.
Promote other sources of finance that can be made available to viable cash starved SMEs.
“Access to credit is a pivotal concern for SMEs and cannot be allowed to slip back to recessionary rejection levels. We have now seen refusal rates increase for two successive quarters. It is imperative that Government act now to ensure that the state-owned banks are lending appropriately for a growing economy”, Fielding concluded.