SMEs still not seeking credit despite upturn

Despite recent good news on the economic outlook, SMEs are not demanding more credit to any noticeable extent, according to a new report.

The report compiled by DKM economic consultants and the Irish Banking Federation, states that despite a recent modest upturn in the economy and the existence of a host of government funding initiatives and business supports, demand has not increased and the problem does not appear to be on the supply side.

The report identifies a number of concerns as persisting, including: legacy SME debt levels and balance sheet constraints; “a cautious and confused consumer”; and the significant reduction in retail sales.

The dull demand for SME funding is linked to weak domestic demand that is hampering economic recovery, according to the report.

“As previously highlighted, SMEs require substantial and sustained increases in disposable incomes, consumer spending and domestic demand if there is to be a significant change in their attitudes towards seeking funds for investment and expansion as opposed to working capital purposes,” said the report’s author, DKM’s Annette Hughes.

The report also highlighted a number of positives in the economy including increasing employment and a rebound in the volume of certain categories of retail sales — particularly car sales. The value of retail sales rose 3.6% year-on-year in May and 0.6% from the previous month.

An improving manufacturing sector and sustained growth in tourism are also heralded as signs of an improving economic environment for SMEs.

Construction SMEs — which account for 95% of workers in the sector and generate 88% of total turnover — were highlighted as being of importance to economic recovery.

“There is real opportunity to grow turnover in the construction sector and deliver much needed jobs, housing and other infrastructure... then, through the various output and employment multipliers, the activities of other SMEs can receive a boost as Irish firms supply these firms back through the supply chain and the additional wages generated are spent on Irish goods and services.”