Irish firms are overly reliant on banks for finance, ESRI research finds

Irish firms are too reliant on banks for finance and are slow to exploit newer products, such as crowdfunding and peer-to- peer lending, according to research from the Economic and Social Research Institute.

The research also reveals Irish firms frequently use less formal sources of finance such as trade credit from suppliers or customers as well as family or business loans.

The research, conducted by economists Martina Lawless and Conor O'Toole, will be presented at a conference on small and medium-sized enterprise (SME) finance in Dublin today, hosted by the ESRI and the Department of Finance.

The conference, “Financing SMEs in Recovery”, will also debate how Government policies on access to finance for small businesses can bolster recovery in the SME sector, the economy’s largest single employer, accounting for 70 per cent of the total.

The difficulty in accessing bank credit for SMEs has been a central feature of Ireland’s post-crash economy and has been pinpointed as a cause of the current housing supply shortage in Dublin.

Crowdfunding

However, the research suggests firms are overly focused on banks for finance at the expense of newer sources of financial products, such as crowdfunding and peer-to-peer lending, which tend to be used most by firms in the ICT sectors.

It also indicates there is very limited use of formal sources of non-bank debt such as issued debt or mezzanine financing.

The research also reveals Ireland has the second-highest rate of firms currently using equity financing or indicating it is relevant to their operations.

“Equity usage is higher amongst larger firms. For SMEs operating in sectors driven more by domestic demand, equity financing is more likely to come from friends and family or other business partners than venture capital type arrangements,” the report said.

Expected credit demand of Irish SMEs was estimated to remain relatively stable at its current level of €57 billion in the near term, with credit to non-financial firms returning to its long-run average of equivalent to 40 per cent of GDP, it said.