70% of businesses who applied for loans received credit approval

70% of businesses who applied for loans received credit approval

The first independent survey into demand for credit among small and medium-sized businesses shows 70% of firms that applied for loans received credit approval.

The total excludes companies whose applications are still awaiting a decision.

The survey by accountancy firm Mazars, commissioned by the Department of Finance, found that 36% of 1,506 small and medium-sized enterprises (SMEs) surveyed asked for credit from banks between April and September 2011.

The bank declined credit in 23% of cases during the six month period, while approval was given in 54% of cases. Some 23% of applications are still pending.

Of the SMEs who did not request credit, 80% did not require credit or had sufficient reserves, while 7% believed the banks were not lending.

The absence of an independent survey on the demand for credit among SMEs had led to major differences of opinion between business lobby groups, which claimed that the banks were not lending to companies, and the banking industry, which maintained that they were still providing credit.

The survey found that during the review period, 48% of SMEs reported a decrease in turnover, while 26% reported an increase.

Minister for Finance Michael Noonan welcomed the report for the further clarity that it will bring to the pattern of SME lending. The survey would be “a valuable resource in informing policy decisions in this area,” he said.

“It is vital that the banks continue to make credit available to support economic recovery,” said the Minister. “However, it is not in the interests of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed.”

John Trethowan, who runs the Credit Review Office that monitors the level of bank credit approvals and refusals, will publish the sixth report of his office soon.

In his last report published in August, Mr Trethowan said that Bank of Ireland and AIB were unlikely to meet their target of lending €3 billion each to SMEs this year.

Mr Noonan said that he was determined that the lending targets set by the Government for the two so-called “pillar” banks of lending of at least €3 billion to SMEs this year, €3.5 billion next next year and €4 billion in 2013 would be achieved. He encouraged SMEs to approach the banks with viable business plans.

Leave a Reply