SME finance Ireland – Credit Lines

As economic activity cratered over the last 18 months, businesses have had to find ways to continue covering costs. Government supports, such as the Covid Restrictions Support Scheme (CRSS) which provides grants of up to €5,000 a week to businesses, provided much needed liquidity. €172.2 million was paid out under the scheme, with 17,100 businesses registered for the CRSS covering 19,700 premises.

The scheme was aimed at restaurateurs, publicans, retailers and small independent businesses. A breakdown of the scheme shows that businesses such as hairdressers and beauticians account for 22.2% of those who received payments pubs that don’t serve food account for 17.7%, cafes and restaurants account for 12.4%, specialist retail stores 12.2%, hotel and other accommodation businesses for 9.3%, and bars that serve food for a further 9.1%.

SMEs in Ireland also had the option of applying for credit through conventional sources such as banks. Credit demand was lower in 2020 than in 2019 because firms claimed they had sufficient funds and/or were reluctant to take on debt. Access to government funds also reduced the desire to take up loans.

Reduced lending was caused by reduced demand for credit from SMEs in 2020 and some tightening in supply. This tightening of credit conditions was less severe than during the financial crisis, and Government guaranteed lending appears to have eased credit conditions for SMEs.

Although the rate of rejection for SME credit applications was mostly unchanged compared to previous years at 15%, according to the Central Bank rejections for part of the requested amount increased. Payment breaks were widely used by Irish SMEs in 2020, with moratoriums applied to around 25% of debt balances.

Some of the main trends over the past year were:
• Although banks reported tightening credit standards for SMEs in Ireland in 2020 these were loosened for guaranteed lending upon the introduction of the Credit Guarantee Scheme in H2 2020.
• 72% of SMEs reported they did not apply for credit noting they mainly had sufficient funds, although applications for credit by Irish SMEs may have been lower given the availability of public supports.
• SMEs generally borrowed for working capital rather than investment.
• Expired payment breaks on Republic of Ireland SME loans have largely returned to full payment on extended or existing terms with 20% requiring further support or falling into arrears.
• Revenues reduced in almost two thirds of Irish SMEs. While SMEs have adjusted to this via reduced expenditure and the use of State supports, turnover declines have only partially been offset, with firms booking losses on average in 2020.

As the economy reopens, supports decline and liabilities begin to crystalise, forward looking cash flow budgets will become more important than ever.

If you would like to discuss the supports that are available to your SME business, please contact Jennifer Power.

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