Minister Donohoe welcomes results which show increases in bank credit approval rates, business turnover and business sentiment
The Department of Finance has today (Monday) published the latest in its series on SME Credit Demand Surveys, which covers the six month period October 2017 – March 2018, the results of which have been welcomed by the Minister for Finace and Public Expenditure and Reform, Paschal Donohoe TD.
The survey series is currently being conducted by Fitzpatrick Associates in conjunction with Behaviour and Attitudes, on behalf of the Department of Finance. It is the most comprehensive survey of SME Credit Demand in Ireland, covering over 1,500 respondents through in-depth discussions. The survey ensures that it captures a full picture of the SME landscape in Ireland, with micro enterprises, small-sized enterprises and medium-sized enterprises accurately represented as per the percentage make-up of SMEs in Ireland.
Survey’s key findings include:
- There is a significant increase in the numbers of SMEs that believe banks are lending at 61%, up from 45% in March 2017;
- Positive business sentiment has increased for companies of all sizes with 55% of SMEs expecting the business climate to improve in the next six months – up from 49% in March 2017;
- The demand for bank credit increased by 6 points year-on-year to 26%, and is up three points from Sept 2017. This represents the first consecutive increase in demand since the series began. Demand is now on a par with March 2016. Demand had been consistently falling from a high of 40% in March ’13 to its lowest level of 20% in March ’17;
- For the fifth year in a row, there was an increase in the reported number of companies making a profit, with a growth from 40% in March 2013 to 64% in March 2018.
- SME finances also continue to improve with 87% (+3%) of SMEs reporting stable or increased turnover;
- 45% of all businesses surveyed report increased turnover in the past six months, with 14% reporting a decrease. Of those reporting increased turnover, half report an increase of 10% or more.
- 88% of applications for credit were approved, which is an increase from 85% on the previous survey wave in Sept 2017;
- 57% of SMEs believe that Brexit will have a negative effect on their business while 11% believe that it will have a positive impact (up from 9% in March 2017). 32% of SMEs believe it will have no impact on their business.
- Of those that did not access credit, 89% cited lack of credit requirements as their reason;
- The average cost of credit on outstanding loans is 5.06%, which represents a slight decrease and is a continuation of a downwards trend.
On the publication of the Survey Minister Donohoe said: ‘I welcome the results of the latest SME Credit Demand Survey, October 2017 – March 2018, which shows an overall increase in positive business sentiment in Irish SMEs. It is encouraging that there has been a noticeable increase in the number of respondents that feel that banks are increasing lending. The survey has also captured that, notwithstanding the uncertainty of Brexit, Irish SMEs are more confident in the continued improvement of the business climate over the next 6 months’.
“I would like to take this opportunity to sincerely thank all those who took part in this survey, allowing us to gain vital understanding of the Irish SME landscape and the views and perceptions held by them. It is an invaluable resource that allows us to develop, refine and implement policy measures to ensure our indigenous businesses are adequately and well supported.”
Note for Editors:
Background of Report
The SME Credit Demand Survey has been conducted biannually since 2011 to monitor trends in access to credit by SMEs. Please note while the survey is conducted on a 6 monthly basis, for presentation purposes, the report uses year-on-year comparisons.
The Department has conducted the SME Credit Demand Survey to provide an independent and statistically significant report into the Irish SME landscape and the availability of, and demand for, credit that exists within that sector. The survey was conducted through a telephone survey covering over 1,500 businesses. It drew a carefully constructed sample from a large database of SMEs, made repeated calls to ensure a full response and asked factual questions. The full questionnaire is included in the report. The report and previous reports are available on the Department of Finance website at https://www.finance.gov.ie/updates/sme-credit-demand-survey-october-2017-march-2018/.
The report, which is published today, presents the results from the SME Credit Demand Survey October 2017 – March 2018. Conducted by Fitzpatrick Associates in conjunction with Behaviour and Attitudes, all interviews took place between May 21st and June 25th2018.
Demand for Bank Finance
26% (+6%) of SMES have applied for bank finance in the past six months, this increase in credit demand is consistent across SMEs of all sizes, to broadly the same extent.
The survey also registers an increase in expected future demand for credit, with 19% of all SMEs expecting to apply for finance in the next six months, up from 13% during the corresponding period in 2017. This increase in expected future demand is driven by small and medium sized, rather than micro, SMEs.
The average reported cost of credit on outstanding loans is 5.06% – a decrease from 5.1% in September 2017. It should be noted that different question wording for cost of credit has been utilised from September 2017.
Application Process
Of those companies that have requested bank finance (26%), business expansion, working capital and new machinery/equipment are the main uses for this finance.
75% of those that applied for bank finance did so formally – down from 80% in March 2017. The main reason given for submitting an informal request is that the business felt there was no need for a formal application, as the request related to a repeat loan or was linked with a personal relationship in the bank.
64% of SMEs whose credit applications were approved have availed of all of the facility, and a further 17% have availed of part of it. However, 19% of SMEs with approved credit applications have not yet availed of the facility, down from 26% in March 2017.
61% (+16%) of all SMEs believe that the banks are currently lending to at least some SMEs, 16% believe they are not, while 23% are unsure.
Credit Support Awareness
Of those that applied for credit to a pillar bank, 54% were informed of their right to a review by the Credit Review Office, when don’t knows are excluded 66% of SMEs were informed.
Of those who were refused credit, 38% claimed that they were informed of the right to an internal review, up from 20% in 2017. N.B. This is based on a very small sample size.