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'Set up body to review SME lending'

Wednesday, July 16 12:02:49

Independent verification of lending rates across the banking sector is necessary to address concerns surrounding the availability of bank credit to SMEs.

That's according to a Report on Access to Finance for SMEs published today by the Dail's Joint Committee on Jobs, Enterprise and Innovation.

The Committee said it is concerned about the divergence of opinion between the banks and the small to medium business representative organisations in relation to bank lending.

"Given these concerns about the reality of the situation on the ground and the fact that opinions on the availability of credit for SMEs are so divergent, the Committee considers that the Central Bank may be the appropriate authority to carry out a study into independent verification of lending rates," it said.

The statement added that there is an over-reliance on bank loans and overdrafts and the Committee considers that the development of non-banking sector funding initiatives to fund growth in the SME sector should be strongly encouraged.

There is also a need for sector-specific specialists in banks, the report highlighted.

The report makes a total of 25 recommendations, including that mechanisms to restrict the necessity of requesting personal guarantees should be considered.

A viable business should not be brought down by the calling in of a previous bad loan and new businesses need to be made aware of all the charges that a bank will impose on them before a bank account is opened or a loan drawn down so that they can budget for them, it said.

"It should be mandatory for banks to provide detailed written explanations as to why a particular application for credit has been turned down. Loan applications should be dealt with by banks within a specific timeframe and a response should be provided within two weeks at the latest. There must be greater supports for small businesses to improve their financial literacy with particular emphasis on the drafting of business plans," the Committee said.

Committee Vice Chairman, John Lyons TD added that the committee has identified the availability of funding and supports for small and medium sized businesses as a key priority in national efforts to achieve economic recovery.

"The small and medium sized enterprise sectors are integral and important elements of our economy and if we are serious about our indigenous businesses we need to encourage and help create the best environment for them to operate in. The availability of funding and supports are essential for many small businesses to get up and running, flourish, innovate and expand."

For more visit: www.businessworld.com