SMEs reduce their requests for bank credit but ask for larger amounts

The latest survey of SME credit demand in the The Department of Finance shows that the percentage of bank loan applications for small businesses fell by four points in the year to March compared to the previous year.

About 76% of businesses said they did not seek credit because they had sufficient internal funds for their needs, with only 16% of businesses seeking bank credit and a further 5% seeking non-bank financing.

The ministry said the investigation of more than 1,500 respondents, carried out by Behavior and attitudesis here “the most comprehensive survey ever carried out on the demand for credit by SMEs”, and some of its main results are:

  • 45% of all businesses reported an increase in revenue in the six months to March 2022, with 18% reporting a decrease, a significant improvement from 2021.
  • All sectors saw an improvement in revenue performance, with the largest improvement of 66% coming from the hotel and restaurant sector.
  • 61% of SMEs reported profits in 2022, compared to 53% in 2021. 10% reported a loss in 2022 while 25% broke even.
  • Two-thirds of SMEs agree that it is important to invest in adaptation to climate change.
  • For 38% of SMEs, energy costs were less than 2% of the cost of sales, while for 26%, energy costs were between 2 and 5% of the cost of sales. For 9%, energy costs represent more than 10% of the cost of sales.
  • Electricity costs represent a significant portion of total energy costs.
  • 35% of SMEs have committed funds to invest in energy efficiency over the next year.

Credit demand from banks was weaker, with 16% requesting bank financing in the March 2022 period, compared to 20% in March 2021. Credit demand remained unchanged at 20% among medium-sized businesses, the decline being driven by micro (12%) and small businesses (18%).

The largest decline in credit demand was recorded in hotels and restaurants (from 26% to 10%) and construction (from 26% to 19%). Credit demand was highest for manufacturing at 22% (down one point from March 2021) and construction at 19% (down 7%).

Credit demand from banks was weaker, with 16% requesting bank financing in the March 2022 period, compared to 20% in March 2021.

The average cost of credit reported on outstanding loans was 4.59%, down from 4.9% in March 2021.

Of those seeking non-bank funding, 89% were fully approved, 1% partially, while 6% were denied, with 3% of applications still pending at the time of interview.

Of those who applied for non-bank financing, 54% applied because of working capital needs, and 24% because of a new business venture/expansion/purchase of assets or equipment. Only 2% was applied due to a need to restructure current loans/credits. The most common requests for non-bank financing were for new loans (35%) and leasing/rent-purchase (26%).

The average value of a credit application for new financing was €353,577, a jump from €163,550 in March 2021. The average value of applications to renew or restructure existing financing was €41,538, down sharply from €180,260 in 2021.

The average reported turnover for the year to March 2022 (€4.29m) was 5% higher than the average reported turnover for the previous year (€4.09m) ). This is €614,808 for micro enterprises (+5%) and €3.68m for small enterprises (-5%), while medium-sized enterprises achieved an average turnover of €11.81 million (+15%).

61% of all businesses reported making a profit in the six-month period to March 2022, with 10% reporting a loss. Again, this is a significant improvement from March 2021 and represents a continuation of the improvement seen in the previous wave through September 2021.

The average time between the request and the decision is 22 working days, compared to 24 in March 2021. The share of loans still pending is only 6% compared to 7% in 2021.

The proportion of credit applications that were refused stood at 11% in March 2022, the same level as in March 2021. Rates of decline were lowest in the manufacturing, construction and services sectors. business services. The highest rates of decline were recorded in hotels and restaurants, at 40%.

Those applying for Covid-related financing needs and/or to restructure their debt were more likely to have their applications turned down.

The full results of the half-yearly survey are available here.