SME interest rates remain elevated

Irish SMEs are continuing to pay over the odds to access funding, despite minor decreases in the cost of credit over the past year.

The average interest rate on non-financial SME loans drawn down in the first quarter of 2016 was 4.44%.

This represents a 0.27% decrease on the opening three months of 2015 — when rates first began creeping down.

Rates are nonetheless higher than those applying to the existing stock of Irish SME loans which averaged 3.06%.

The most expensive loans — those advanced waste management, water supply, and sewerage businesses — carry an interest rate of 7.67%.

Construction (5.63%), social, and personal services (5.39%), and wholesale and retail (5.30%) companies face similarly high rates.

Rates on new drawdowns to construction SMEs remained significantly higher than rates to the real-estate sector, at 3.30%.

The average interest rates charged to those in the hospitality industry for credit was 5.03% in the opening months of this year.

Higher than average rates apply to new drawdowns by SMEs engaged in the agriculture (5.07%) too.

By comparison, financial intermediation companies can access funding with an accompanying interest rate of just 1.65%.

Property-related lending to SMEs no longer constitutes the largest share of outstanding credit to SMEs.

However, the sector accounted for a third of gross new non-financial drawdowns during Q1 2016.

Overall, gross new lending to SMEs was €200m higher in the first quarter of 2016 compared to the first quarter of 2015.

When property-related SMEs are stripped out, new lending of €657m was almost identical to the level seen the previous year, however.

SMEs also continued to pay down debt at a faster rate than they took out new loans with outstanding bank credit declined for the fifteenth consecutive quarter.

The outstanding stock of SME credit declined by 2.6% over the first quarter of 2016 to stand at €41.5bn. This represented an annual fall of 10%.

This trend is in contrast to larger companies, who tend to be able to access credit at much lower cost, who continue to be net borrowers.

A separate report released on Monday by Strategic Banking Corporation of Ireland showed that the government SME financing fund was helping ease the cost of finance somewhat.

Cheaper loans sourced from the European Investment Bank, German bank KfW and the Irish Strategic Investment fund proved attractive with 4,620 Irish SMEs taking out a loan with the SBCI last year for a total €172m.


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