Irish SMEs ‘discouraged’ from seeking bank loans

The relatively high interest rates that Irish small companies are being charged for their loans could affect perceptions of success in getting bank loans in the first place, according to research from TCD Business School.

“Discouraged borrowers, firms that would have good prospects but who are not borrowing for a fear of rejection, represent a not insignificant problem in the EU,” said professor of finance Brian Lucey at TCD.

He said the many surveys showing that Irish SMEs pay far more than the average for their business loans than anywhere in the eurozone could also be discouraging companies.

“Banks and governments need to do more to educate firms as to the credit available and to persuade banks to look at firms on their books which have not followed their peers in borrowing,” Mr Lucey said.

“This is not to advocate pushing credit on unwilling customers. It is to suggest we should focus more on those who could borrow for good projects but who do not,” he said, citing the findings of research called ‘Discouraged Borrowers: Evidence from Eurozone SMEs’.

Its survey of 6,287 SMEs in nine eurozone states shows Ireland’s firms had the greatest non-application rates because of fear of rejection.

Austrian and Spanish firms had the least fears their applications for loans would be rejected.

The research found that “the younger, smaller firms that are more likely to be discouraged”.

The study’s authors recommend improved education and awareness for SMEs.


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