The clarity which the SME Lending Study, brings to the issue of SME credit demand and supply is timely, given the number of policy initiatives now in train in relation to SME lending.
Undertaken by Mazars in conjunction with Ipsos MRBI for the Department of Finance, and supported by all of the key stakeholders, the Study provides the basis on which informed policies and practices can be implemented.
Against a backdrop of continued difficult trading conditions for SMEs, the study shows reduced turnover and weak demand for credit - with 38% of SMEs seeking credit in the six-month period, Oct'11-March'12. Where credit is being sought, it is mainly for renewal/restructuring of existing facilities rather than for growth and expansion.
In finding that 72% of requests for credit were fully or partially approved (when applications pending are excluded), the Study notably concludes that there is a correlation between an SME's ability to secure credit and various business performance factors that include turnover and profitability. At the same time, the Study points to areas where lenders' own processes can better accommodate the needs of the business borrower.
The wealth of information contained in the report will be particularly helpful to facilitating a constructive bank/SME relationship. The importance of reliable information is further underlined by the Study's finding that the perception that banks are not supportive of SMEs is based less on personal experience and more on information from sources such as business representative groups.
According to Pat Farrell, IBF Chief Executive: "The real significance of this SME Lending Study lies in its confirming the importance of a number of key components to the bank/SME relationship. These are: business viability as a basis for securing credit, banks' responsiveness to the needs of viable businesses and, perhaps most importantly of all, reliable information as distinct from perception as a driver of policy and practice. In this regard, we strongly encourage SMEs to apply for credit where they believe they have a sound proposition."
IBF and its member banks fully recognise the importance of the SME sector to the business of banking and, more significantly, to the interest of the wider economy. To this end, the sector has been working on a range of initiatives to support the bank/SME relationship, which includes the following:
- developing a Business Plan and Cashflow guidance for SMEs and mircroenterprises - IBF jointly with the various accountancy bodies (CCAB-I)
- promoting www.smallbusinessfinance.ie , jointly developed by IBF and Chambers Ireland as a comprehensive source of information on small business finance
- supporting and assisting in the implementation of the Government's Credit Guarantee Scheme and Microenterprise Loan Fund.
Complemented by a range of recently-launched, bank-led supports and solutions for SMEs, this represents a solid basis on which we can progress a shared agenda of supporting existing businesses and new growth opportunities.
Article Published: 06/07/2012