The Department of Finance/Red C SME Credit Demand Survey published today shows a number of positive trends which are welcome.
These include a further increase in the overall application approval rate by banks, further improvement in the turnaround time for application decisions and improved communication by banks around reasons for credit decline.
Among those SMEs seeking credit, the research provides positive and welcome results as follows:
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an increase of four percentage points to 80% in the number of applications approved in full/part by lenders
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an increase of three percentage points to 57% in the number of applications processed within 15 working days
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a significant improvement in bank communication of the reason for a credit decline, with only 10% now claiming they were not given a reason.
While an increased number of SMEs report a welcome improvement in trading conditions during the April-Sept 2013 period, it is notable that this is not mirrored in an increase in demand for credit – rather a reduction to 36% in the proportion of SMEs seeking credit is recorded. The authors’ commentary that such conditions have led to a somewhat reduced working capital dependency on the part of struggling businesses is supported by feedback from IBF-member banks over that same period of time. Furthermore, anecdotal evidence points to a preference on the part of some businesses to rely on cash flow for finance. In the final analysis, the reality is that 4 out of 5 (78%) businesses who did not apply for credit advised Red C that it was because “didn’t need it”.
With the prospect of further improved trading conditions, the authors anticipate an increased demand for credit for investment and growth purposes. This would indeed be a welcome development, as banks’ experience shows that the most significant credit demand has been for working capital.
However, as the recently-published DKM/IBF SME Market Monitor reported, the trading environment for many SMEs is made challenging by weak domestic demand. As the report’s author, Annette Hughes, stated at the time “Any meaningful pickup in retail sales and thus SME activity will require a sustained increase in disposable incomes and a willingness amongst consumers to spend”.
Commenting on the Red C results, IBF’s Director of Public Affairs, Felix O’Regan stated:
“The Red C research points to a number of key trends which are heading in the right direction, while also indicating the challenges that remain – not least in the transition for many of our SMEs from the survival stage to the growth stage. Both at individual bank level and at IBF level, our sector remains fully focused on working with all viable SMEs –it’s in our mutual interests to do so. Apart from bank finance and non-finance supports, our focus includes support for the range of important Government initiatives under its Action Plan for Jobs: these include the Credit Guarantee Scheme, Microfinance Ireland and various initiatives to enhance financial planning and management skills among SMEs.”
Article Published: 04/12/2013