Welcome reduction in refusal rate to 32%, down from 38% in previous quarter.
27% of decisions pending; a much too long time-frame.
Average of eight weeks from request to drawdown increased from 6 weeks.
28% plan to apply for an SBCI loan, most within 6 months.
Two main banks must be monitored and instructed to promote and use SBCI funds.
ISME, Thursday 5th of March, 2015.
The latest ISME, Quarterly Bank Watch Survey released today (5th March), shows that bank lending rates to SMEs increased in the first quarter of 2015. This is the fourth successive quarter of improvement in the success rates of SMEs who apply for bank loans. The Association is also pleased to note that demand for credit has remained high at 43%; proof that SMEs are attempting to expand and develop their businesses as the economy shows fragile signs of recovery.
ISME CEO, Mark Fielding, commented on the results of the survey, “Bank credit was largely unavailable to SMEs during the recession. This made a difficult business environment even more perilous for small businesses. It seems that the improvements in the economy have inspired the banks to reopen their purses and move towards healthier lending policies. SMEs are currently exploring ways to improve and expand their businesses and greater access to credit will certainly help this process”.
“One major concern is the delay in decision making by the banks, with 27% of decisions pending and the length of the lending process now stretching out to eight weeks.”
“The imminent opening of the SBCI is a welcome initiative and it is hoped that lending rates will come back to a more normal figure once this funding comes on stream on the 9th of March. The fact that 28% of SMEs are planning to apply for SBCI funding shows the demand for longer term funding, which is more appropriate for growing SMEs. However, the cost of funding and indeed bank charges across the board are of major concern. SME owner managers are experiencing large increases in bank fees and this is wreaking havoc on already weak profit margins.”
“The initial portfolio of SBCI products will include a facility for refinancing for businesses whose current loans are with exiting banks, such as Rabo, Danske and Anglo, with about half the first tranche of funding earmarked for this. The two main banks must be told in no uncertain fashion to promote and use the SBCI facility for these enterprises, as their record in promotion of other government schemes has been almost non-existent, resulting in poor take-up.”
The survey, conducted in the week ending 28th February had 852 SME owner manager respondents, a rate of 11%. This provides a strong indication of the real SME lending environment.
The headline statistics are as follows:
32% of companies who applied for funding in the last three months were refused credit by their banks, an improvement on the 38% refusal rate, seen in the previous quarter.
27% of applications are pending, no change from the previous quarter.
43% of respondents had required additional or new bank facilities in the last 3 months, compared with 44% in the previous quarter.
64% of those who required funding made a formal application, an increase from 62% in the previous three months.
Informal applications have increased from 75% to 81% since the previous survey.
23% of initial bank decisions were made within one week; a decrease from the 30% in the previous quarter.
On average, the initial decision time has remained at just over 4 weeks. The wait to drawdown has increased from 2 weeks to 3 weeks.
14% of respondents who required bank finance did not apply for various reasons, a four percent decrease on the previous quarter.
47% of respondents are customers of their bank for over 20 years, while 85% are over 5 years.
Of the 68% approved for funding, 48% have drawn down the finance either fully or in part.
48% of requests were for term loans, with 26% for overdrafts, or alterations to existing facilities, while invoice discounting/factoring accounted for 7% of requests, with 19% requesting leasing.
18% of respondents had increases in bank charges imposed, while 4% have suffered increased interest rates.
Reductions in overdrafts were demanded of 4% of SMEs.
60% state that the Government is having either a negative or no impact on SME lending, down from 66% in the previous quarter.
79% are aware of the Credit Review Office, while 60% are aware of the Credit Guarantee Scheme and 56% know about the Micro Finance scheme, up from 47% in previous quarter.
55% of respondents are aware of the code of conduct for business lending to SMEs.
The Association, called on the Government to:
Demand honest and reliable reporting from the rescued banks, through the Department of Finance and Central Bank.
Ensure that the SBCI funds are promoted by banks and used appropriately for SMEs.
Investigate other sources of finance that can be made available to viable cash starved SMEs.
Increase promotion of the re-vamped Government Credit Guarantee scheme and Microfinance scheme.
Outsource better management for bailed-out banks to oversee their lending policies.
“With the two main Irish banks showing profits they must now loosen their purse strings. If the fragile SME sector economic recovery is to continue, then AIB and Bank of Ireland must start lending again at a ‘normal’ rate. This ISME Bank Watch survey shows some positive signs, however the decision time, the numerous charges and the pass through of new SBCI funding must be monitored closely by the Central Bank. The bailed-out banks are back in business as a result of a State rescue, however they must be watched, leopards don’t change their spots”, Fielding concluded.