31% of firms with fewer than 10 staff can’t get credit

ONE in three businesses with fewer than 10 workers cannot get bank loans to finance their enterprises, a report compiled for Finance Minister Brian Lenihan reveals.

The second Report of the Independent Review of Credit Availability published yesterday shows that lending to the SME sector, excluding speculative construction and real estate sectors, declined by 2.6% over the period.

The report compiled by Mazars, shows the value of new applications for credit had fallen by 27% and SMEs drew down €2.7 billion from the banks in the seven months from March to September 2009.

Among the key findings of the report, as identified by the Department of Finance, was: “Refusals to businesses with less than 10 employees were highest at 31% (up from 30%), small businesses refusals are now up to 29% from 25%, while medium businesses refusals have risen to 23% from 19%.”

The report shows that banks’ data indicate rates of refusal of credit applications of an average of 13% while the demand side survey indicates a refusal rate of 28%.

“Mazars’ opinion is that a decline rate of 18% is more representative of the banks’ data. This opinion is based on some credit applications not being recorded until the lending decision is made, declines not being recorded on a consistent basis across all banks, records of informal applications generally not being maintained by banks,” the report said.

Mr Lenihan said the report confirms while some SMEs face significant challenges accessing credit, the sector is more conservative in its borrowing but added that new loans are still available.

“The proportion refused credit, especially in certain sectors, remains a concern for government which is determined to ensure that viable businesses should be able to access credit. All our actions in relation to the banks since the crisis intensified last autumn have been aimed at increasing the flow of credit to the real economy.

“Most recently under the NAMA legislation, I have the power to issue guidelines relating to the review of decisions to refuse credit facilities,” he said. He said these guidelines are at an advanced stage of development and John Trethowan has agreed to head up the review system.

“This will give SMEs, including farm enterprises and sole traders, a right to an independent review of a refusal of credit. If it is found that the credit should have been granted, the bank will have to comply or explain why it should not,” he said.

The director of the Small Firms Association, Patricia Callan, said the report clearly shows SMEs face an even more challenging environment in accessing credit than was the case when the first report was released in July 2009.


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