Most small business loans approved

More than two-thirds of loan applications by small businesses this year were approved, a new report has revealed.

Despite claims that Small and Medium Enterprises (SMEs) are struggling to secure credit, 70% of those that had applied to banks between April and September were successful.

Finance Minister Michael Noonan said the report will deepen understanding of relations between banks and small companies.

“The results of this survey will be a valuable resource in informing policy decisions in this area and will be of benefit to all,” he said.

The report, commissioned by the Department of Finance, showed that only 36% of the 1,506 businesses surveyed applied for a loan or overdraft facility.

Demand for credit dropped from two years ago, when 52% of respondents in a similar survey made an application.

Mr Noonan and Taoiseach Enda Kenny announced last week that the Government would fund an action plan to boost lending to viable SMEs falling just shy of strict lending rules in the banks.

The €100m pot, known as the Micro Finance Loan Scheme, will offer cash to businesses all over the country and is expected to benefit more than 5,000 businesses over a 10-year period.

A new temporary partial credit guarantee scheme was also announced, so for every 100 million euro guaranteed, 1,200 businesses will benefit.

“These schemes will be in place from the first quarter of next year, and will be particularly welcome in light of the findings of this report in relation to micro-enterprises,” Mr Noonan said.

According to the SME Lending Demand Study, 64% of SMEs surveyed did not even apply for a bank loan or overdraft – the vast majority of those, 80%, claimed they did not need credit or had sufficient funds in the business.

The report showed that 54% of credit applications were approved, 23% were declined and 23% were still pending.

The 70% of businesses surveyed that were successful does not take into account pending applications.

Mr Noonan said: “It is vital that the banks continue to make credit available to support economic recovery.”

He pointed out that the Government has set lending targets for Bank of Ireland and AIB for the next three years – each must lend €3bn this year, €3.5bn in 2012 and €4bn in 2013.

Mr Noonan said in order to ensure these targets are met, SMEs must approach banks with viable business plans.

“It is not in the interest of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed,” he said.

Micro businesses, which are privately owned and employ small numbers such as hairdressers and small convenience stores, fared worst in applying for credit, but 65% of those who applied were approved a loan.

The survey was carried out through telephone interviews with 1,506 businesses across Ireland – micro, small and medium in size – by specialist firm Ipsos MRBI.

The Irish Banking Federation welcomed the report, saying it brings into focus the realities of the marketplace.

Chief executive Pat Farrell said the viability and bankability of the SME applicants are key considerations for banks.

“At the same time, the study points to areas where lenders’ own processes can better accommodate the needs of the business borrower and where further business supportive initiatives can be developed,” he added.

Meanwhile, the Small Firms Association described the credit rate of around 30% as concerning, with director Patricia Callan saying it was unacceptable.

“Each refusal amounts to another business under threat of closure or not able to get off the ground, and is a lost opportunity for critically important job creation efforts,” she said.