Two-thirds of SMEs say access to credit remains difficult

Almost two-thirds of Irish SME businesses said they have found it difficult to access credit, a new survey has revealed.

That could create a barrier to economic recovery, the quarterly Linked Finance SME Confidence Index said, and comes as the traditional banking sector shrinks with the exit of Ulster Bank and KBC from the market.

Although Irish SMEs were supported by payment breaks and loan forbearance during the pandemic, access to fast and flexible working capital has been flagged as an issue in helping grow those businesses.

More than one in five SMEs expect the situation to worsen with the exit of the lenders and access to borrowing to become “very difficult”, with 41 per cent saying it would be “somewhat difficult” to borrow.

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Price inflation is also hitting businesses hard, with 31 per cent said they had increased their prices in the final quarter of 2021.

However, companies are still optimistic about their prospects, with the index recording business optimism at a level of 67.9, up from 49.5 a year ago, and just off an all-time high of 69.1 in the third quarter of 2018. Almost half of companies expect business next quarter will be higher, with a third saying it will remain the same and only 19 per cent expecting business levels to fall.

Some 39 per cent of SMEs said business activity was higher in the fourth quarter of 2021, compared to 17 per cent in the final quarter of 2020.

Recovery for micro SMEs – those with one to three employees – showed a slower rate, with an optimism index level of 65.4 compared to 73.2 for transitional SMEs (those with up to nine employees) and 71.7 for mid/large SMEs.

Micro SMEs also had weaker employment rates; only 7 per cent had a higher level of employees in the final quarter of 2021, compared to 39 per cent of mid to large SMEs.

The report is based on research conducted by Behaviours & Attitudes prior to the easing of pandemic measures. A further improvement in sentiment is expected in the next quarter following the easing of restrictions on January 21st.

"Access to credit is the lifeblood of any fast-growing SME and the latest Index findings indicate that many businesses are facing challenges borrowing money. That's come as the traditional banking sector is shrinking with the planned departure of Ulster Bank and KBC from the market," said Niall O'Grady, CEO of Linked Finance.

“Business optimism is now returning to pre-pandemic levels while the operations issues such as hiring new staff and inflation pressure continue, accessing finance in a market being dominated by only three traditional players does not make for a competitive marketplace.”

Linked Finance is an alternative credit provider. It issued loans worth more than €36 million in 2021, a rise of 80 per cent on the previous year.