Report calls for greater diversity of funding sources for SME sector

A greater diversity of funding sources is required for credit-starved small and medium enterprises, according to a new report.

The ‘Access to Finance for SMEs’ report, compiled by the Joint Oireachtas Committee on Jobs, Enterprise and Innovation, found an over-reliance on the banking sector as a source of finance for Irish SMEs and recommended the development of non-banking sector funding initiatives to fund growth in the sector.

Committee vice chairman John Lyons said that supporting the SME sector was crucial to achieve economic recovery and that access to credit was a major concern within the sector.

“The small and medium sized enterprise sectors are integral and important elements of our economy and if we are serious about our indigenous businesses we need to encourage and help create the best environment for them to operate in,” said Mr Lyons.

Among the alternative sources of finance explored by the committee was crowd-funding and peer-to-peer lending whereby members of the public can provide micro-loans to businesses.

The main peer-to-peer lender in Ireland, Linked Finance, welcomed the proposals in yesterday’s report.

Specifically, proposals to offer tax incentives to crowd-funding lenders and to examine the possibility of the State co-funding loans as the British government does, were welcomed.

Under the British system, the government funds 20% of each loan on Funding Circle (a similar platform to Linked Finance). When introduced, this initiative resulted in a five-fold level of lending from £1m to £5m in five weeks, according to Linked Finance chief marketing officer Marc Raffery.

Other recommendations in the report, welcomed by the Small Firms Association and others, were the introduction of an independent review of lending rates across the sector to address concerns surrounding the level of lending; and the expansion of MicroFinance Ireland’s scope to allow it to lend to SMEs other than those that have a credit application refused.