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Press Release

Credit Demand Survey shows that 68% of SMEs reported a profit but business sentiment changes in the face of Brexit - Donohoe

Published: 3 September 2019
From: Department of Finance

The Department of Finance has today (Tuesday) published the latest in its series on SME Credit Demand Surveys which covers the six month period October 2018 – March 2019. This survey series is currently being conducted by Fitzpatrick Associates in conjunction with Behaviour and Attitudes, on behalf of the Department of Finance. It is the most comprehensive survey of SME Credit Demand in Ireland, covering over 1,500 respondents through in-depth discussions. The survey ensures that it captures a full picture of the SME landscape in Ireland, with micro enterprises, small-sized enterprises and medium-sized enterprises accurately represented as per the percentage make-up of SMEs in Ireland.

SME Credit Demand Survey October 2018 - March 2019

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Some of the Survey’s key findings include:

  • Demand for bank credit increased from 20% to 25% on the previous survey wave but is down slightly year on year (-1%, March 18).
  • 68% (+4%, March 18) of all SMEs reported a profit. This is the sixth year in a row there has been an increase in the reported number of companies making a profit.
  • However, business sentiment has significantly declined, with 31% (-24%) of SMEs reporting that they expected the business environment to improve in the next 6 months. While 70% (+13%) of SMEs believed that Brexit would have a negative impact on their business.
  • 78% (-11%, March 18) of SMEs cited lack of credit requirements as the reason for not seeking credit. The decrease is explained by an increase in the number of SMEs who said they have existing credit already in place or that they would prefer not to borrow.
  • The survey registers marginal decrease in expected future demand for credit, with 17% (-2%, March 18) of SMEs expecting to apply for credit in the next six months.
  • SMEs who have availed of their full credit facility have decreased to 60% in March 2019 (-4%, March 18)
  • The average cost of credit on outstanding loans declined slightly to 4.55% (5.06%, March 18).

On the publication of the SME Credit Demand Survey Minister for Finance & Public Expenditure and Reform, Paschal Donohoe T.D. said:

‘I welcome the results of the latest SME Credit Demand Survey, for the period from October 2018 – March 2019. The survey shows an increase in the number of SMEs reporting a profit over the six months surveyed for the sixth year in a row, despite increasing concerns over Brexit’.
“I would like to take this opportunity to sincerely thank all those SMEs that took part. The SME Credit Demand Survey series allows us to gain vital understanding of the Irish SME landscape and is an invaluable resource that allows us to develop, refine and implement policy measures to support our indigenous businesses.”

Ends

Note for Editors:

Background of Report

The SME Credit Demand Survey has been conducted biannually since 2011 to monitor trends in access to credit by SMEs. Please note while the survey is conducted on a 6 monthly basis, for presentation purposes, the report uses year-on-year comparisons.

The Department has conducted the SME Credit Demand Survey in order to have an independent and statistically significant report into the Irish SME landscape and the availability of, and demand for, credit that exists for SMEs. The survey was conducted through a telephone survey covering over 1,500 businesses. It drew a carefully constructed sample from a large database of SMEs, made repeated calls to ensure a full response and asked factual questions. The full questionnaire is included in the report. The report and previous reports are available on the Department of Finance website at SME Credit Demand Surveys.

The report published today presents the results from the SME Credit Demand Survey October 2018 – March 2019. Conducted by Fitzpatrick Associates in conjunction with Behaviour and Attitudes, all interviews took place between May 21st and June 25th 2019.

Key Findings

Trading conditions for the October 2018 to March 2019 period remained positive, and broadly on a par with those prevailing during the period to March 2018. 42% of all businesses surveyed reported increased turnover in the six month period, with just 17% reporting a decrease.

For the sixth year in a row, results show an increase in the reported number of companies making a profit, with a net profit versus loss balance of +60% in March 2019 versus +33% in March 2014.

Business sentiment with regard to the next six months declined considerably, confidence decreased from 55% of companies in March 2018 expecting the business climate to improve down to 31% in March 2019.

Just 8% of firms believed that Brexit would have a positive impact on their business (down from 11% for March 2018), while 70% believed it would have a negative impact (up from 57% for March 2018).

Demand for Bank Finance

Credit demand from banks was similar year-on-year, with 25% having applied for bank finance in the March 2019 period compared to 26% in March 2018.

The main stated reason for not seeking credit was a simple lack of credit requirements, a reason cited by 78% of businesses not seeking credit (down from 89% in March 2018).

The most significant increase in credit demand by sector was from hotels and restaurants, +5 percentage points; and business services, +3 percentage points. The most pronounced drops in credit demand, on the other hand, were in manufacturing (- 8 percentage points) and construction (-7 percentage points).

The average reported cost of credit on outstanding loans was 4.55%, down from 5.06% in March 2018.

5% of SMEs reported having missed repayments of their loan in the period, up from 3% in March 2018.

Application Process

The proportion of companies that applied for credit with one of the pillar banks declined slightly, from 79% of all those requesting bank credit in March 2018 down to 77% in March 2019.

The average value of credit applied for was €249,558, up from €128,819 in March 2018, with the increase largely accounted for by an increase in the number of loans for €500,000 or more.

13% of credit applications were declined in March 2019, up marginally from 12% in March 2018. The main stated reasons for credit decline were not meeting the bank’s criteria, ability to repay the facility or credit, and the risk profile of the facility.

60% of SMEs whose credit applications were approved have availed of all of the facility, with 15% having availed of part of it. 25% (+6%, March 18) of SMEs with approved credit applications have not yet availed of the facility.

Credit Support Awareness

62% of all SMEs in the March 2019 wave believed that the banks are currently lending to at least some SMEs, 14% believed they are not, while 24% were unsure.

Of the 14% that believed that the banks are not lending, 34% claimed that their view was based on personal experience (on par with March 2018), with the balance basing their opinion on information from business organisations, media reports or the views and opinions of their peers

68% of those companies that applied for credit from the participating banks also said that they were informed of their right to a decision review by the Credit Review Office.