SFA comment on Department of Finance SME Lending Survey

Monday, 9 November 2015

“We encourage all our members to make formal applications for finance to the banks and to appeal all negative decisions to the Credit Review Office.” Patricia Callan, SFA Director

SFA Comment on Department of Finance / Red C SME Credit Demand Survey April – September 2015

  • Access to Finance critical for small business growth and jobs
  • Bank Lending improving – but questions remain about costs, time and decline reasons
  • Alternative forms of finance vital to small business development

Patricia Callan, SFA Director, has welcomed the more normalised bank lending relationship revealed in the Department of Finance commissioned Red C “SME Credit Demand Survey” report (published this morning). 30% of SMEs sought credit from April-September 2015, of which 85% of applications were approved or partially approved by the banks (73% when including pending applications).

However, she warned of the difficulties being created with the much reduced competition in the SME finance market. “The cost of finance here is much higher than in competitor European economies. Small businesses here pay 2.3% more in interest rates than the eurozone average and this is unsustainable. Equally the risk adverse nature of banking here means that we are seeing much greater requests for personal guarantees (47% in this survey). Where there is adequate equity in a Business, there is no need for a personal guarantee,” commented Callan.

Callan also raised issues around bank communications, noting that the report found that the majority of applicants (77%) who have been declined don’t agree with the decision, that more than a quarter (26%) were not given any reasons for decline and that 64% were not informed of their right to an internal appeal, with just 53% informed of their right to appeal to the CRO. In addition, the time for a decision averaged 19 working days, with only 65% processed within the target of 15 days. “It is clear that the banks still have a long way to go in standardising customer experience at branch level. It is critical in rebuilding the small business banking relationship, that communications are improved, that clarity is given around decision-making rationale and that process targets of 100% of applications being dealt with in 15 days and all declines being informed of their right of internal appeal and external appeal to the Credit Review Office, are achieved in the next 6 months”, commented Callan.

In conclusion, Callan stated that “Everyone in business would agree that accessing the correct funds at the right life-stage of a business is critical to its survival. In Europe, we are heavily reliant on bank finance (two-thirds of SMEs) vs. equity; the exact opposite to the experience in the US. We need to bridge this equity gap, through encouraging alternative forms of finance providers including crowd-funding, invoice discounting, asset finance, as well as enhancing our VC and business angel model. Most importantly, we need a tax incentive that works for ordinary people, including family, friends and other small business owners and individuals, which make it more attractive for these individuals to back small businesses vs. falling into the cycle of just buying another apartment. The obvious vehicle for this is the EIIS scheme which needs to be simplified so that the small business community can actually use it.”


For further comment, please contact:
Patricia Callan, Director, Small Firms Association at Tel: 01-6051602 or 087-6999345 or e-mail: patricia.callan@sfa.ie or Tweet: @SFA_Irl