Credit, Late Payments and Cost of Doing Business Putting Pressure on SMEs in Ireland

November 26, 2009 Updated: December 9, 2010

Small and Medium Enterprises (SME) are the life blood of the economy in Ireland and they are facing tough times at present.

During the 1990s SMEs were faced with similar problems when there was a slowdown in their performances. At that time the number of new businessesstart-ups was in-line with EU averages, however, there were more failures in Ireland. In 1994 the "Task Force on Small Business" was setup to investigate why SME's were under performing and suggest ways that the SME sector could be supported.

The Task force found that the main reasons for higher failure rates and lower performance were the lack of business management skills possessed by those responsible for running these businesses and the lack of credit for expansions and development purposes.

A five point plan was then created to resolve these issues in 1994:

  1. Appropriate finance should be provided for SMEs who had potential but lacked the resources, this would be carried out through government support and bank sector, at that time the Industrial Credit Company (ICC bank) existed which later merged with Bank of Scotland (Ireland) in 2001.
  2. Entrepreneurs in business start-ups should be rewarded for the risks they undertake, it was therefore decided to reduce their tax burdens and social insurance payments.
  3. The entry costs into the market for SMEs should be reduced to stimulate the sector, therefore the bureaucratic demands of paperwork and time involved in start-up were reduced.
  4. Education and training needed to be increased, grants and initiatives were introduced to help in this area.
  5. Moderinise support services and structures for SMEss via “One stop shop” SME business support centres.


Current problems

Speaking to The Epoch Times, Mr Mark Fielding, Chief Executive of ISME (Irish Small and Medium Enterprise Association) explained the current problems facing SMEs.
Apart form the obvious factors of reduced spending resulting in reduced sales revenue, there are three other main issues facing many SMEs

Cost of doing business

Cost are much higher that the revenue SMEs are currently generating. Rent, rates, wages and electricity are probably higher that they should be. “So they [SMEs] are finding it difficult to make ends meet,” said Mr Fielding.

Late Payments

“Large businesses and semi-state bodies are not paying small businesses in time” said Mr Fielding. The knock on effect of this, according to ISME's CEO is that SMEs are “running into cash flow problems.”

Banks closed for business

“The banks are almost totally closed for small businesses, even though they say they are open … their method of lending has changed totally … it is much more difficult to get stocking loans coming up to Christmas, bridging finance, whatever it is," said Mr Fielding.

In relation to the latest government initiative to help SMEs called the “Credit Supply Clearing Groups” Mr Fielding was of the opinion that no amount of Credit Clearing Groups will make the banks change their current system of lending to SMEs, He believed that the government as major shareholders in these organisations must “put the squeeze on the banks to lend more to SMEs … because it's so easy for a bank to come up with all kinds of reasons not to lend money to a business."
According to Mr Fielding there has been some speculation in the banking sector that Anglo may be turned into a entity similar to the old ICC Bank, which he thinks would be a good idea as it would increase competition in the area of lending to SMEs. Mr Fielding said that approximately 76 per cent of lending for SMEs at present comes from AIB and BOI with around 16 per cent coming from Ulster Bank.

Governments response

Speaking at the First Step, Microfinance Seminar on Access to Finance in Carrick-on-Shannon this month, the Minister for Labour Affairs, Mr Dara Calleary TD, said that “in supporting small and medium enterprises, the government’s focus over recent months, has been on actions to sustain a positive business environment, including the proper functioning of the banking system, allied with specific targeted supports for SMEs through the Department of Enterprise, Trade and Employment’s Enterprise Development Agencies.”

With respect to NAMA, Minister Calleary said that, the Minister for Finance, Brian Lenihan TD had legislated power to issue guidelines, to the participating institutions in the NAMA process, with respect to lending practices and procedures to improve the flow of credit to small and medium-sized enterprises.

Mr Calleary also noted that: “Within my own Department, the enterprise development agencies such as Enterprise Ireland, FÁS and the County and City Enterprise Boards have continued to assist enterprises through their grant and advisory schemes. Significant allocations were made in my Department’s Estimates for 2009 to sustain the work of the development agencies. The 100 million euro Enterprise Stablisation Fund and the 250 million euro Employment Subsidy Scheme are additional measures to make funding available to assist SMEs through the current difficulties.”