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Lending to SMEs in Ireland has been paltry under government schemes

Written by Robert McHugh, on 3rd Jun 2020. Posted in Financial

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Goodbody Stockbrokers has released its latest Irish Economy Health Check which uses UK trends as a guide as to what the potential demand for loans by Irish SMEs may be. 

Goodbody say the extraordinary take-up under the three pandemic lending schemes in the UK highlights the urgency for an increase in the scope and scale of government-backed schemes in Ireland.  

Lending to UK businesses under the three new lending facilities set up since the start of the pandemic continued to increase last week. A further £3.9bn in lending was approved to 94,000 businesses in the week to 31st May. This takes the total amount lent under the three main lending schemes to £31.3bn to 745, 000 businesses.

According to UK Finance, an average of 275,000 loans and overdrafts were issued per year over the past five years by the 10 largest banking groups. The total number of facilities agreed also amounts to c.31% of non-financial businesses in the UK.

Goodbody used the UK trends as a guide as to what the potential demand for loans by Irish SMEs may be. Scaling the lending done in the UK, this would potentially result in lending of €3.4bn

ISME, the group representing Irish SMEs, noted the very low take-up of loans under the schemes that have been introduced in Ireland to date. Less than €75m has found its way to SMEs, while legislation has not yet been passed for the additional government guaranteed lending scheme. 

A new government will need to be formed before this happens. The UK experience suggests that banks may be unwilling to lend to businesses in this environment, even with an 80% government-guarantee.

According to Goodbody Stockbrokers, "The funding characteristics of UK and Irish SMEs are not that different and with both countries experiencing lockdowns of similar scale and duration, cash-burn is unlikely to be dramatically different. While debt will not be the answer for all firms, there is an urgent need for additional lending supports for Irish SMEs."

Source: www.businessworld.ie

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