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SME Finance for Growth

SMEs are critical to the Irish economy for the maintenance and creation of jobs. Banking and Payment Federation Ireland (BPFI) and its member banks are acutely aware of the imperative of providing finance to fuel these businesses.

The importance of banks to Ireland’s SME sector is clearly illustrated in figures produced as part of a recent InterTradeIreland report, Access to Finance for Growth for SMEs on the Island of Ireland (Dec’13). Of the total supply of finance to SMEs in the Republic across all sources at end-December 2012 (€27.6b), 93.2% was in the form of bank finance, 5.0% was in the form of seed and venture capital, 1.13% was by way of public finance and 0.67% by way of angel and private finance. In many respects this shows the over reliance of SMEs here on bank funding and the under-utilisation of other sources of finance, particularly equity finance.

The main business lending banks are well placed to support viable businesses from the survival stage, through the recovery phase and on into expansion and growth. Banking and Payment Federation Ireland (BPFI) and its member banks consistently encourage businesses who believe that they have a viable proposition that requires credit to make a formal application to their bank.

In one of its key conclusions, the Intertrade Ireland report states that: “Most SMEs are approved for bank finance when they apply formally. While 7% of SMEs who require finance are afraid to approach their bank, all surveys have consistently shown that the majority of SMEs who apply for credit receive a favourable response. This figure is relatively consistent with patterns shown in similar studies carried out in other European countries.”

And in its most recent study, the Department of Finance/Red C SME Credit Demand Survey (covering Oct’13-March’14) points to a number of positive trends:

  • an increase to 81% in the number of applications approved in full/part by lenders
  • an increase to 61% in the number of applications processed within 15 working days
  • a significant increase in the usage by micro companies of formal credit application channels

BFPI Policy Focus

Both at individual bank level and at BPFI level, the banking sector remains fully focused on working with all viable SMEs. This is clearly reflected in the support being provided to a wide range of banking finance as well as non-finance initiatives.

  • Credit Guarantee Scheme: Launched in 2012, the Credit Guarantee Scheme supports viable SMEs that do not have sufficient security or whose sector, business model or target market is considered to be high risk.  The Government guarantees 75% of each loan provided under the scheme for up to three years.  BPFI provided considerable input into a review of the Scheme, which was commissioned by the Department of Jobs, Enterprise and Innovation (DJEI) in 2013. Concrete proposals by BPFI for changes to key elements of the Scheme, including breadth and length of coverage should, if adopted, provide for greater customer uptake and better operation of the Scheme.
  • Microfinance Ireland: The Microenterprise Loan Fund Scheme (www.microfinanceireland.ie ) was launched in September 2012 and provides loans of up to €25,000 to start-up, newly established, or growing microenterprises employing fewer than ten people, with commercially viable proposals that do not meet the conventional risk criteria applied by banks. Loans are available for start-up costs, business expansion and working capital. The main SME-lending banks support MFI by promoting awareness amongst SMEs about the scheme – including reference in their credit decline letters – as well as familiarising their own SME-lending staff about the initiative. BPFI works closely with MFI and our Director of Public Affairs (Felix O’Regan) was appointed to its Board by the Minister for Jobs, Enterprise and Innovation.
  • Market Research: Prepared by DKM Economic Consultants and published by BPFI, the DKM/BPFI SME Market Monitor, is a regular report which tracks a range of key indicators important for the performance of the SME sector. The report draws on 15 indicators that influence the circumstances under which SMEs conduct their business and provides commentary and analysis on the current environment for SMEs and likely future trends. To see the latest report click here.
  • SME Financial Education: BPFI and member banks have developed a range of tools and resources to help SMEs manage their finance, assess their financing needs and make applying for credit simpler. These initiatives have resulted in the Standard Small Business Credit Application Guidance and Form, the BPFI/Consultative Committee of Accountancy Bodies – Ireland (CCAB-I) Business Plan Guidance and the Small Business Finance website with Chambers Ireland, which provides small businesses with information on financing options available. BPFI welcomes efforts by Government departments and agencies to address SME financial education needs through initiatives such as the ManagementWorks Finance4Growth programme. In our submission on the proposed National Entrepreneurship Policy Statement, we encouraged Government, supported by SME representative bodies, to develop initiatives and programmes to boost financial literacy and entrepreneurial management skills among SMEs. Indeed, entrepreneurial education and training to support growth and business creation was identified as an area for immediate action in the European Commission’s Entrepreneurship 2020 Action Plan and the Report of the Entrepreneurship Forum recommended a national education strategy for entrepreneurship at all levels of the education system. For further information on any of the above initiatives please click on the individual links and websites or visit our Customer Assist Business page.
  • Export Credit: Banks in Ireland provide foreign exchange, payment/cash management, export credit and a range of other products and services to exporters to support international trade and economic growth. However, Ireland is one of few countries in the EU that does not have a government-backed export credit agency or export credit insurance scheme. In collaboration with relevant stakeholders, BFFI is engaging with government to promote the establishment of an export credit agency or export credit insurance scheme in Ireland so that businesses in Ireland can compete on a level playing field.
  • SME Funding Consultation Committee: Along with other key stakeholders, BPFI is an active participant of the Government’s SME Funding Consultation Committee, a forum for consultation in relation to the provision of credit to SMEs. A Committee sub-group is currently examining the role of equity finance in SME start up and development.

Looking Ahead

The economic environment for the SME sector overall continues to improve – helped by positive trends in the labour market and consumer sentiment generally.   That said, there is still uncertainty about the strength of recovery in consumer spending and its impact on SME activity – particularly in the retail and other consumer-facing areas of the market on which a very high proportion of our SMEs depend. How SMEs themselves perceive the likely demand for their products and services will continue to directly impact on SME credit requirements – both in terms of the amount and the type of credit sought.

As the economic recovery continues to take hold, banks remain open for business and have the capacity to lend where it is responsible to do so. The sector is fully committed to working with viable SME as it is in our mutual interest to do so. The consistent message from BPFI and its member banks is to encourage SME who believe they have a viable proposition to apply for credit.

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