Survey shows 70% loan approval

The first independent survey into demand for credit among small and medium-sized businesses shows 70 per cent of firms that applied for loans received credit approval.

The total excludes companies whose applications are still awaiting a decision.

The survey by accountancy firm Mazars, commissioned by the Department of Finance, found that 36 per cent of 1,506 small and medium-sized enterprises (SMEs) surveyed asked for credit from banks between April and September 2011.

The bank declined credit in 23 per cent of cases during the six month period, while approval was given in 54 per cent of cases. Some 23 per cent of applications are still pending.

Of the SMEs who did not request credit, 80 per cent did not require credit or had sufficient reserves, while 7 per cent believed the banks were not lending.

The absence of an independent survey on the demand for credit among SMEs had led to major differences of opinion between business lobby groups, which claimed that the banks were not lending to companies, and the banking industry, which maintained that they were still providing credit.

The survey found that during the review period, 48 per cent of SMEs reported a decrease in turnover, while 26 per cent reported an increase.

Minister for Finance Michael Noonan welcomed the report for the further clarity that it will bring to the pattern of SME lending. The survey would be “a valuable resource in informing policy decisions in this area”, he said.

“It is vital that the banks continue to make credit available to support economic recovery,” said the Minister. “However, it is not in the interests 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.”

Mr Noonan said that he was determined that the lending targets set by the Government for the two so-called “pillar” banks of lending of at least €3 billion to SMEs this year, €3.5 billion next next year and €4 billion in 2013 would be achieved. He encouraged SMEs to approach the banks with viable business plans.

The Small Firms Association said the fact that banks were declining 30 per cent of credit applications from SMEs - excluding cases where decisions are still pending - showed that lenders were "too risk adverse".

"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," said SFA director Patricia Callan. "The banks are too risk adverse, take too long to give customers a decision and do not encourage appeals. This is unacceptable."

Chambers Ireland said that a decline rate of 30 per cent was "not unexpected" given that trading conditions remained challenging for SMEs. It was vital that banks responded to requests for credit within 15 days because the time taken to make decisions on applications had "lengthened recently", said the business organisation.