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Nearly half of SMEs refused credit

Monday, September 10 11:57:15

Nearly half - 49pc - of small and medium sized firms (SMEs) were refused credit by the banks in the last three months, according to the latest ISME Quarterly Bank Watch Survey out today.

It said the survey found that demand for credit has remained fairly steady at 38pc and that the refusal rate has declined from the 54pc refused credit in the previous three month period.

The lobby group called on the Government to immediately demand full and complete disclosure from the bailed out banks on lending to SMEs, adding that the ISME report backs up the recent report from the Central Bank, which confirms that access to bank finance is being denied to viable but vulnerable businesses.

The survey also found that 16pc of respondents who required bank finance did not apply for various reasons.

Of those 38pc were afraid of a reduction in existing facilities, 25pc were afraid of refusal and a similar number were actually discouraged by bank from making application.

It also found that 85pc of respondents are customers for over 5 years, while 42pc are over 20 years.

Of the 51pc approved for funding, 74pc have drawn down the finance either fully or in part.

The survey also found that 49pc of requests were for overdrafts, with 48pc for term loans, or alterations to existing facilities, while invoice discounting/factoring accounted for 8pc of requests, with 7pc requesting leasing.

Reduction in overdrafts were demanded of 38pc of SMEs, who had other changes in their bank facilities in the last three months, similar to the previous quarter, ISME said.

It found that 53pc of respondents were micro businesses, 37pc small and 10pc were medium enterprises and 96pc state that the Government was having either a negative or no impact on SME lending, similar to what was reported in the previous quarter.

Commenting on the survey results, ISME Chief Executive, Mark Fielding warned that "where there are constraints on credit from banks they are less likely to invest in new technology, upgrading, marketing or exporting and more likely to shed jobs and ultimately close down. High rejection rates in Ireland cannot be explained away by banks and their PR machine as weak demand and poor quality of applicants. The number of "discouraged by bank" Irish SMEs who do not apply, at twice the EU average, is worrying to say the least and is deserving of more in-depth analysis by the Central Bank".

"The recent Central Bank paper on SME Lending (22nd Aug) suggests that steps must be taken to improve perceptions of banks among borrowers. A first step in this would be for banks to desist from lying about successful applications running at 9 out of 10. As can be seen from this survey an overwhelming 96pc of SMEs do not believe these ridiculous false claims. A more hands on Central Bank oversight could stop this bending of the truth," continued Fielding.