Banks’ demands are hindering credit supply, says survey

Banks’ demands that small business owners personally guarantee their companies’ loans are hindering the supply of credit, a survey published today says.

The Irish Small and Medium-sized Enterprise (Isme) association's quarterly Bank Watch Survey shows that 43 per cent of businesses that sought credit during the first three months of the year were refused.

The number is lower than in the previous quarter, when the banks refused close to half the small businesses that applied to them for loans.

Isme welcomed the development but its chief executive, Mark Fielding, says much more progress is needed in the area.

His organisation says businesses expressed concern about the level of personal guarantees that the banks are demanding from owners as a condition of lending money to their companies.

In many cases lenders are seeking guarantees for more than the actual amount sought by businesses.

“Much of the problem here stems from inadequate training of bank staff who do not have the necessary skills and expertise to analyse businesses proposals,” Mr Fielding says.

“As a result of this inadequacy and the fear of ‘making a mistake’, risk is not being properly analysed, personal guarantees are being demanded and loans are being refused.”

He adds that a lack of awareness amongst bank staff of the Strategic Banking Corporation of Ireland (SBCI) funding available for small businesses means that many firms remain unaware of its existence.

Banks are meant to administer the SBCI scheme, a State-backed source of low-cost credit for small and medium-sized businesses.