SME sector improves but demand for credit still low

New findings show that trading conditions are continuing to improve amongst SMEs, but that demand for credit remains low.

The latest Department of Finance/Red C SME credit demand survey shows that 84% of respondents have seen their performance, in turnover terms, improve (either remaining stable or increasing); in the past six months; up 10% on the preceding six months. The survey measures performance from April to the end of September of this year.

Other positives include 56% of firms being profitable (up 5%) and 30% (a rise of 7%) saying they have increased staff numbers.

While credit demand amongst SMEs remains low at 31% (of the 1,500 firms surveyed), banks’ approval rates have improved, with 86% of applications approved during the period. More than 80% of those who didn’t seek credit during the period said they didn’t need it, while only 1% said they found it too expensive to borrow.

Furthermore, SME satisfaction with the banks is improving; 56% of firms holding the belief that the main institutions are actively lending; a figure up by 1% in the past six months, but up from just 39% two years ago.

According to Red C, the overall low level of credit demand is down to stronger performing SMEs not needing loans for working capital purposes, coupled with limited increases, at present, in demand for credit for growth purposes.

Finance Minister Michael Noonan welcomed the progress, saying it provides “clarity on the state of play in the SME sector”.

Awareness of loan support programmes, such as the Credit Guarantee Scheme and Microfinance Ireland, as well as the work of the Credit Review Office has dipped in the past six months.