Almost two-thirds of Irish SME businesses find it difficult to access credit as traditional banking sector shrinks
- 31% of companies charging higher prices in Q4 2021 as annual inflation hit 5.5% in December
- Micro SMEs are slowest to recover from pandemic hit
- Business Optimism Index score at 67.9 – close to record levels
- Increased competition and options for SME finance will deliver the biggest impact in SME recover
Almost two-thirds (63%) of Irish SMEs are finding it difficult to access credit, creating a barrier to economic recovery. This is according to figures from the latest quarterly Linked Finance SME Confidence Index, based on research conducted by Behaviours & Attitudes.
Even with increased support for Irish SME businesses throughout the pandemic via payment breaks and loan forbearance, Irish SMEs still face difficulties in gaining access to fast and flexible working capital. SMEs were asked in light of Ulster Bank and KBC planned exit from the market how easy or difficult did they expect it to be to borrow money in 2022: 22% of respondents said ‘very difficult’ and 41% ‘somewhat difficult’.
Despite concerns about the availability of credit, the latest Index showed Business Optimism at a level of 67.9 (out of 100), up from 49.5 a year ago, and close to the all-time high it reached of 69.1 in Q3 2018. Business outlook for SMEs is also good with 48% of companies expecting business next quarter will be higher (33% the same, 19% lower).
Given the data was largely gathered prior to the Government’s further easing of restrictions on 21st January, a further improvement in sentiment is expected next quarter. SMEs have continued to adjust and adapt to the shocks felt throughout the pandemic, and as the economy reopened 39% of SMEs were already reporting higher business activity in Q4 2021, compared to 17% in the final quarter of 2020.
Price inflation remains a thorn in the side of the economic recovery. The Index found that the proportion of businesses looking to charge higher prices is at its highest level in ten years, with 31% of companies charging higher prices in Q4 2021. The findings are consistent with the most recent CSO consumer price index for December which showed an annual inflation rate of 5.5%, a 20-year high1.
The latest Index findings suggest recovery is coming slower to micro-SMEs (those with 1-3 employees). These businesses reported an Optimism Index level of 65.4 compared to 73.2 for transitional SMEs (4 to 9 employees) and 71.7 for mid/large SMEs (10+ employees). This slower rebound in optimism is matched by weaker employment rates for Micro-SMEs: only 7% had a higher level of employees in Q4 2021 versus the prior-year period, compared to 39% of mid/large SMEs.
Niall O’Grady, CEO of Linked Finance, said:
“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. Our aim at Linked Finance is to break down barriers to growth by offering easy to access financing options with fast credit decisions and fast drawdowns.
We welcome the greater recognition from Government that of the important role of alternative lenders, who help to maintain competition in the SME lending market. The CBI’s recent announcement of plans to introduce a regulatory framework for peer-to-peer lending is positive as it will provide long overdue reassurance for lenders and borrowers.
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.”
In 2021 Linked Finance issued loans worth over €36m, an increase of 80% on the prior year, with strongly performing sectors including construction (+87% on 2020), professional services (+65%) and retail (+15%).
Since its establishment in 2013 Linked Finance has grown rapidly to deliver over €182m to over 3,000 ambitious local businesses in every county in the country. Companies that have availed of lending through Linked Finance include Skingredients, Tara Slevin, The Agile Executive, and Schoolbooks.ie.
To view the full findings from Linked Finance SME Confidence Index, visit www.linkedfinance.com