Oireachtas Joint and Select Committees
Tuesday, 25 March 2014
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Report on Access to Finance for SMEs: InterTradeIreland
The next topic is a discussion with Mr. Aidan Gough, director of strategy and policy at InterTradeIreland, and Dr. Eoin Magennis, policy research manager at InterTradeIreland, on the report entitled Access to Finance for Growth for SMEs on the Island of Ireland. I welcome Mr. Gough and Dr. Magennis to the meeting. It is timely for the witnesses to be appearing before the committee because the committee is beginning its discussion of SME credit and lending and will probably focus on these issues over the next couple of months. We are delighted to hear from the witnesses today.
By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they directed by the committee to cease giving evidence in respect of a particular matter and continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity either by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I now ask Mr. Gough to make his presentation to the committee.
Mr. Aidan Gough:
I am delighted to have this opportunity to discuss our report entitled Access to Finance for Growth for SMEs on the Island of Ireland. As the committee is probably aware, InterTradeIreland was set up under the Good Friday Agreement to exchange information and co-ordinate work on trade and business development. We work primarily with small, micro and medium-sized businesses across the entire island of Ireland. We have engaged with over 25,000 businesses over the past 12 years and have directly supported about 6,000 businesses through grant assistance. We are an all-island body rather than just a cross-Border body. By that, I mean that we operate with businesses in every county across the island.
There are approximately 300,000 small and medium enterprises, SMEs, on the island of Ireland. The well-documented distress experienced by the banking sector has had a powerfully disruptive influence on the wider economy, particularly in the SMEs sector. It has also revealed the complexity of the marketplace that supports finance for growth and has shed light on a number of serious defects in the financial system that supports finance for growth for SMEs. This prompted InterTradeIreland to commission an all-island study looking at the market that supports the supply and demand for finance for growth among SMEs. Our report, which was published in December 2013, seeks to broaden the debate from an important but narrow focus on the supply of bank finance to a more comprehensive and necessarily complex discussion on the availability and use of appropriate financial instruments to support a growing SME economy.
We also have a business monitor which surveys the views of 1,000 businesses across the island on a quarterly basis. We published the monitor for the last quarter of 2013 in January. It showed the most positive set of results we have had in over four and a half years. It showed that close to 50% of businesses were now in growth mode and saying they were in growth mode. This is up from 10% in one year so we are moving into a period where it looks like the economy is starting to grow at the SME level.
I will set out the key findings from the report. For the first time, the report provides a new benchmark for Northern Ireland's credit supply. Northern Ireland did not have a figure for the supply of credit and did not know what the banks were lending because those statistics were not being collected. We worked with the banks in Northern Ireland and got a figure for that, which now sets a benchmark and will, hopefully, be taken forward within Northern Ireland. It estimated that the supply of credit to SMEs in Northern Ireland was about €4.3 billion. The report also emphasises the importance of the demand for finance. We all know the implications of the distress in the banking sector on supply but it also had severe implications for the demand for credit from the SME community. The demand for finance from SMEs is now at its lowest level since data began to be gathered in around 2010.
The report also showed that SMEs in Ireland and Northern Ireland are disproportionately reliant on the banking sector as a source of finance. Almost 93.5% of the finance available to SMEs in 2012 was bank finance, which was a disproportionately high figure compared to any other European country. There is too great a reliance on the banking sector for funds for growing SMEs and there is a lack of diversity in the SME financing landscape. SMEs in Ireland and Northern Ireland are over-reliant on short-term banking facilities such as overdrafts and short-term loans. There is a disproportionate reliance on banks, overdrafts and short-term options.
We also found a substantial legacy of property debt within the SME community. The report showed that about 9% of businesses had legacy property debt and that over a quarter of them said that this was constraining their ability to grow. It was a particular problem for medium-sized businesses. A total of 28% of medium-sized businesses have legacy property debt, which is a substantial proportion of that important sector.
Three fifths of SMEs in the Republic of Ireland and Northern Ireland regard late payments from customers as an issue for them. This compounds the flow of finance within and to the SME community. The problem of late payments creates a vicious cash flow cycle. This problem was greater in the Republic of Ireland.
We also found that the views of banks formed by many SMEs were not based on personal experience and were more likely to be based on media reports and the experience of their peers.
There was a great deal of noise about the availability of finance, but it distracted from the main issues at times. The banks claimed that more than 90% of businesses that applied for loans were successful. However, the business community's view was that the banks were not lending. As such, we recommend that small and medium-sized enterprises, SMEs, in particular make formal applications when approaching banks, as the latter can then be held accountable and the real data can be monitored.
A further matter came to light in the report, in that financial capability was an issue for SMEs. The report found that many businesses' management teams lacked financial skills. InterTradeIreland deals primarily with the smaller end of the market. Many intermediaries, or those involved in advising SMEs, were not even adequately familiar with bank application processes, never mind the other products available to SMEs. There is a problem of capability and information within the financial system. Our survey showed a poor degree of knowledge of the range of supports, including those from organisations and development agencies like us, that are available to the SME community, particularly those that want to invest and grow.
Turning to the recommendations, much progress has obviously been made in developing a broader and more informed financial system that supports the needs of SMEs and, thereby, recovery and growth. Our recommendations focus on three critical areas. First, any market needs a good flow of information, but the flow in this market needs to be improved. I am referring to information on the options and types of support that are available to SMEs. Second, the capabilities of SMEs when making these decisions must be improved so that, given the figure of 93% reliance on bank funding, they do not approach banks only. There are other sources of funding. We have made a series of recommendations on developing the information flow within the system and SMEs' financial capabilities. The hope is that, when information flow and capabilities are developed, demand is created for other sources of products, thereby reducing reliance on the banking sector.
Based on our published research, our advice is that SMEs should plan. We discovered that close to 70% of SMEs did not have business plans. That should be their first action. They should then seek information on what other options are available, for example, equity investment, angel investors - InterTradeIreland is developing an all-island angel investors network - and crowd funders. If they decide to approach banks, they should be prepared. InterTradeIreland does a great deal of work in the equity sector and runs investor readiness programmes. It is important that, when approaching a bank, an SME be prepared, have a plan and explore the options, as the financing need not be a short-term loan or overdraft. I know of a bank in Northern Ireland that offers other products, for example, mezzanine debt products, that may be suitable for companies that have legacy property debts. In this way, SMEs can make informed choices and get the products that suit their investment profiles.
Bhí an cur i láthair sin an-suimiúil. I have many questions, and I will address some of the general ones on InterTradeIreland now. Has its budget been cut in the past while and what is the plan for future budgets? I am unsure of whether Mr. Gough has the freedom to answer my next question, but could InterTradeIreland do more if it had the resources? Is InterTradeIreland's agenda self-created or does it come from the North's Department of Enterprise, Trade and Investment or the South's counterpart? How does InterTradeIreland fit in with those two organisations?
Science Foundation Ireland had a North-South credit facility for research and development. Are there opportunities for creating an all-island microfinance or credit guarantee system whereby one area's facility could be accessed from the other? I do not know whether InterTradeIreland has analysed the situation in the South, but the Government has produced a number of finance products to fill the gaps that the banks may be leaving. These products seem to have a marginal cost over the base rate. Has there been any analysis of the effect of this on demand?
The amount of bank debt provided in the North seems low in comparison with the South at one fifth. The North's population is approximately 40% of the South's. What are Mr. Gough's opinions in this regard? The concentration of lending institutions was mentioned. Is there any analysis of how additional competition would affect the process? It was also stated that the demand for lending was the lowest since 2010, yet ISME has indicated that demand has increased slightly in the past year. Is this InterTradeIreland's experience? According to the report, the South and North are good at drawing down EU funding. Are there metrics of this? Are we pushing the draw down to the nth degree or is there space left?
Mr. Gough stated that, North and South, there was an over-reliance on bank funding compared with other European countries. Is there a European average of credit distribution and the banks' proportion thereof?
The report referred to the right-sizing of debt, that is, where some debts are brought to a sustainable level for businesses. Are there figures on how much right-sizing there has been? The Department of Finance's potential involvement has been discussed. Perhaps our guests might comment on how successful the process has been in terms of the numbers involved.
There seems to be a major disparity between the banks' figures on debt refusals and what the business representative groups assert. For example, ISME claims that loan refusals increased from 50% to 54% in the past year. Our guests might comment on this matter.
A good and important point made by Mr. Gough related to the lack of business skills and knowledge among businesses concerning the ecosystem of credit provision. This is a soft skills opportunity for Enterprise Ireland, Investment NI and local enterprise offices, LEOs. Perhaps Mr. Gough could address this point.
Mr. Aidan Gough:
If I forget anything, Chairman, you can remind me. To start with the budget cuts, InterTradeIreland in its previous corporate planning period was cut by 3%, 6% and 9% on the baseline figure. On its current corporate plan, which runs for 2014 to 2016, inclusive, there are further cuts of 4%, 8% and 12% on the baseline figure of our 2013 budget allocation. By the end of that period it will be six years of consecutive cuts. That is agreed through joint planning guidelines that are agreed between the Department of Finance and Personnel in Northern Ireland and the Department of Public Expenditure and Reform in Ireland. They go through the North-South Ministerial Council. Obviously, that level of cuts affects the delivery of services. There is a high demand for our services. Our programmes are run mainly in the areas of helping small, micro businesses to take the first step on the exporting ladder and helping them to export into the other jurisdiction. We have found that 73% of businesses that export from the island got their initial experience of exporting by operating on the cross-Border market. There is a high demand for those programmes both in the trade area and also in the innovation area, where we are brokering innovation links-----
Mr. Aidan Gough:
Yes, there is a high demand for our programmes. Obviously we must cut our cloth. There is no way around that.
The Deputy asked if the agenda is self-created. We work very closely with the two Departments and with all the other enterprise agencies to ensure, first, that we avoid duplication and that anything we are delivering is seen to add value to the businesses with which we work. We monitor carefully every euro we give, and we know that for every euro we expend the ratio of added value to the business is approximately 12:1. There is a good return for the business and for the Exchequer on the money we are spending. We work closely with the two agencies to ensure there is no duplication. They sit on the steering committee of every programme and initiative we run. We also work very closely with the two Departments. We have an oversight liaison arrangement with the two Departments and we meet with them three times a year. In addition, there is direction which comes from the North-South Ministerial Council when the two Ministers meet, which is approximately three times a year. That is where our policy direction comes from.
InterTradeIreland is unique in that it is an all-island body. We have a significant research agenda and we bring ideas forward. One of the areas we are working on, which I will mention again later, is increasing co-operation to draw down European funding, particularly Horizon 2020 research and development funding. We are devoting a great deal of effort to increasing the opportunities there, which is a benefit to the island, North and South. We have an all-island steering group composed of the various Departments and the agencies. We are running a number of programmes that are helping businesses and researchers for North-South partnerships. We started operating in this area in 2010 when we invited the EU Commissioner, Máire Geoghegan-Quinn, to a North-South Ministerial Council meeting. Since then, the rate of North-South applications has almost doubled and the drawdown has increased substantially. The total North-South drawdown will be approximately €80 million where North-South partnerships are involved. We hope through the steering group we have established - we are just developing a paper in that regard - to at least double that drawdown in Horizon 2020 due to the structures that are now in place to support co-operation. Furthermore, it has become a priority within the Northern Ireland Executive to access this funding, while in the South the drawdown under Horizon 2020 has more than doubled. The target is now €1.25 billion compared to €600 million. Both governments are devoting many resources to this area and we believe North-South co-operation will make a big contribution to helping the governments achieve those targets. Dr. Eoin Magennis will talk about micro finance and issues regarding the base rate.
Demand is increasing. The Deputy mentioned the ISME figures. As the economy starts to grow we would expect the demand to start increasing. That is the reason we produced this report because we were aware of that. The financial distress showed many problems within the sector and the overall market that is supporting the finance for growth. That is the reason we did the report. It revealed things such as a lack of information, a lack of capability and a lack of diversity in the supply of finance. As demand is increasing we have an opportunity to get that marketplace right.
Dr. Magennis will deal with the right-sizing of debt and I have already mentioned Horizon 2020. Dr. Magennis will also reply to some of the finance questions.
Dr. Eoin Magennis:
The Deputy asked about Microfinance Ireland, the margin over the base rate and the impact that might be having. The chief executive of Microfinance Ireland appeared before the committee to discuss the first year of operation and there was quite a slow uptake at that stage. There appears to be some debate about what the impact of a slightly higher margin over the base rate might be. It is a difficult balancing act between having a slightly higher risk profile with some of the businesses and the margin over it, but that appears to be one factor in terms of the low uptake. However, I suspect, given what we found in the report, that a bigger factor is just getting the information out through intermediaries and others that the scheme or initiative is now available. That is a big issue. The Department of Finance and the State bodies group are undertaking a big communications strategy over the next couple of months in terms of rolling out what initiatives are available to SMEs, with road shows and a web-enabled database of the schemes that are available for companies.
With regard to the low levels of Northern Ireland credit, it is 4:1. At one level, if one looks at the relative population North and South, that would appear to be out of line. Another way of looking at it, which perhaps brings it back more into line, is the equivalence of the GDP figures to GVA in Northern Ireland. With the size of the two economies, it is not exactly 4:1, but it is coming close to that. That might mean that it is not as far out of whack as it appears. However, that seems to be what it is. It is hard to know until one gets more figures and more trend data on the Northern Ireland lending figures to see what the true situation is.
We looked at the lending institutions in so far as one key factor is the question of the number of banks or other lenders or companies operating within the market. I doubt that anybody here would consider having two pillar banks and nothing else as being a good or optimal situation. Under the Action Plan for Jobs there are a number of actions with regard to increasing the number of lenders and lending institutions coming into the market. That would certainly be welcomed. It is not just banks. There is also the example of the small area of invoice discounting. We have seen players in the market coming into that area in the last couple of years. They had been there but their profile has been raised in recent years. Having more actors in the market and in the ecosystem generally is definitely a good thing.
On the issue of bank funding and our comment that it is disproportionate, according to the EU-wide survey that is carried out and on which EUROSTAT reports, the EU-27 average is approximately 84% or 85%.
That is approximately 10% less than what the reliance on bank funding is North and South.
On the right-sizing of debt, this is a topical issue on which there is much discussion. For a number of years forbearance seemed to be the way to go in terms of extending the payment terms, giving payment holidays and so on. It is probably coming to that stage now. The banks have said they have a protocol with the Central Bank to look at the loans on their book, and they are working their way through that. We are using the figure that they have worked their way through 90% of their small and medium enterprise, SME, loan book. What we are not hearing, and what remains to be seen, is the action being taken having looked through the loan book. Will individual banks have a strategy as to how they will deal with people who are having difficulties paying those loans and whether some of the loans are viable? Mr. Gough mentioned that Danske Bank in the North has floated the idea of looking at property debt in a slightly different way and putting some sort of mezzanine loan fund in place with debt for equity swaps and other types of longer payment terms, perhaps back-loading as opposed to front-loading payments and so on, which would introduce some flexibility into the situation. What everybody would like to see is, if there is a property debt, that it is not pulling down a viable business. It is not that the debt would be set aside or wiped out but to ensure in some sense that it does not pull down the business because the banks are enabling a viable business to continue trading.
On the numbers of loan refusals, different figures have been put about on whether 84% or 55% of applications have been approved. It is very difficult to know what that is, and it depends on how the companies are surveyed. Whether it is 84% or 55%, it must be borne in mind that we are still talking about tens of thousands of firms. Whether it is only 15% or 45% that are being refused, that is still a large number of firms every year. The banks talk about 120,000 applications made to them for new or revised credit every year. Therefore, in absolute terms, we are talking about large numbers of firms, which probably explains the reason firms are saying they are being refused credit or business associations are reflecting those views.
On the financial skills and information gap, Mr. Gough has covered that. One of the initiatives that has started to be rolled out this year in the South is the management works financial capability initiative, on which courses are running currently. I understand they are trying to deal with capabilities of 900 to 1,000 firms over the next 12 months; that was in the budget last year. A number of financial service providers, including Mazars, are working on mentoring companies in terms of getting their business and financial planning right if they are approaching lending. Some of that investor readiness type work is beginning to happen and I would be very surprised if we did not have a queue for that type of service or initiative if, as I said earlier, the information is got out in the right way and businesses learn from that.
I have two general questions. First, the witness said that an increase in demand from the SMEs for new or enhanced funding was indicative of a recovery. Would he comment on how he estimates the recovery from a Northern perspective in terms of our challenges here in the South and the strength of that recovery? I am sure he has some interesting insights into that.
Second, in regard to SMEs in general, as the witness is aware there is great disparity of esteem in terms of how the public views SMEs as opposed to multinational companies. They get all the glamour and media publicity, which is very unfair when we consider the level of activity generated by the SMEs and the numbers employed across the country. Does that disparity create a more difficult funding environment for SMEs or does it have any negative effect on the way SMEs organise their business or whether they succeed? In general terms does that perception hinder them in any way or is it something they take in their stride?
Mr. Aidan Gough:
In terms of the state of the business sectors across the island, as I mentioned earlier we do the all-island business monitor, where we survey 1,000 businesses every quarter. In terms of the recovery, there is a similarity in the position of the two economies and for the first time we are talking now about a recovery. In our latest survey 40% to 50% of businesses are now saying they are in growth mode, which is up from only 10% a year ago. Therefore, a recovery is happening. What we have said in our-----
Mr. Aidan Gough:
One would expect there to be a lag in employment. It is a business-led recovery in that it is businesses that are exporting and innovating that are leading the recovery. We surveyed that and we are seeing that businesses that say they are being innovative in some way or another, not necessarily in high end research and technology - they could be innovating in the way they are delivering their services, the types of products or whatever - are three times more likely to be growing than those who are not innovating. It is the same with exporting companies. These types of businesses are leading the recovery, and we are seeing the recovery taking place North and South. It is lagging in terms of job creation but it is hoped we will see the jobs recovery taking pace over the next year or so.
On the SME funding environment, because we work with small to micro-businesses we survey them to find out what their requirements are and we are finding, and this applies to our own agency as well, that too many of these small micro-businesses do not know the supports that are available for them. Even if they have heard of the agencies and programmes, they are not sure how they fit in and what is available for them. That is one of the key problems for us, and it is one we have highlighted in the access to finance report, namely, that we must improve the flow of information to small micro-type businesses.
The gentlemen are very welcome. I have only one question. I have been surprised, in advising some businesses, at the lack of professionalism in regard to funding. People have said they cannot get the money but it turns out the applications they made have been very poor. Where do they go for help with that? Do they know where they can go for help? To what extent is IntertradeIreland able to steer them in that direction?
There are other sources, as the witnesses have told us today, such as crowdfunding and others. Even to do that, however, it is necessary to put in a sensible application. I have found that where SMEs claim they cannot get money and have been turned down, when the application is inspected it appears very poor. Who gives them a hand and do they know where to go?
Mr. Aidan Gough:
That is a key finding from our research, that there is a problem on the demand side as well as on the supply side. The figure for the number of businesses that do not even have a business plan when making applications is staggering. There is a lack of financial acumen and capability within the small to micro sector, which is not unexpected given that they cannot have all the skills within their businesses.
This has now been recognised both North and South and they are now running a financial voucher system to help business access the capabilities required if they are seeking investment for growth. There is also the financial capability scheme that is being introduced through Skillnets' ManagementWorks that the Department of Jobs, Enterprise and Innovation is funding. This problem has now been recognised and initiatives are coming on stream. We have been talking to the various accountancy associations about their members upgrading their skills in this regard given that they often have the first touch with these small and micro businesses. It is an issue that has been recognised and answers are coming on stream. It will be critical because if we upgrade the capability, companies will seek options and the supply can be improved.
Mr. Aidan Gough:
The results from the survey we had indicate there is a problem between getting that information out and getting it to the businesses that require it. Dr. Magennis mentioned actions that are being taken through the State bodies group and some sort of communication campaign and a database of all the supports that are readily accessible to businesses.
We also have a problem with regard to access to the information. There should be just one portal advising people where to go and we need to develop that.
The InterTradeIreland report indicates the lack of information, particularly in Northern Ireland, as to what is going on in the SME sector from the banking perspective. Can that be addressed by us putting pressure on our counterparts in the North of Ireland in order that they can get that information somehow? If we are looking for an all-Ireland approach, InterTradeIreland only has the information from one side of the Border and is not getting it from the North.
The witnesses mentioned Horizon 2020 and identified the target in the South of €1.25 billion. Is there a target for the North of Ireland or are we again working in a vacuum up there with no one knowing anything about it?
I am delighted that the report indicates that the majority of SMEs that apply properly for finance from banks get funding. What is out there at the moment is a bit of a myth. However, the key part of that is the mentoring required to make that application correctly. Do the witnesses envisage InterTradeIreland becoming involved in encouraging more such activity? We are trying to develop it in the South through our local employment office system. Is the same process working in the North so that small and medium-sized companies can get the necessary mentoring to apply for loans successfully?
Mr. Aidan Gough:
I will answer the question on whether we are getting involved in the mentoring. We are very keen to avoid duplication and need to be very clear that we add value. We are in discussions with the various agencies to ascertain what is available and how we can lend our skills. We have particular skills in investor readiness because we run that for businesses looking for equity investment. We will see if we can make those skills available to a wider SME base.
The targets in the North for Horizon 2020 have not yet been set, but there will almost certainly be a doubling to in the region of €140 million to €160 million, which is up from a drawdown of €70 million under FP7. They have not been decided yet, but there will be a substantial increase in the targets.
Is that not very little? Deputy Tóibín has rightly mentioned that 40% of the population of the island is in the North and yet InterTradeIreland is only targeting €140 million while we are at €1.25 billion down here. Is anyone driving it up there?
Mr. Aidan Gough:
That is what I was going to say. For some time we have seen this as an area where there could be much closer co-operation. However, we have found that the structure in Northern Ireland and the priority given to drawing down these funds was not the same as the State here made for FP7 where it created the national contact point with more than 30 people working in various sectors supporting businesses and researchers to make applications. In Northern Ireland that level of structure was not in place. However, since we set up the all-island steering group and through the action of the Ministers, a structure has been set up in Northern Ireland to support and target increased drawdown. They have appointed their own network of contact points. They are all working together. The national contact points, or the European advisers in Ireland, are working very closely with the Northern Ireland ones. A real degree of co-operation is taking place, and that is why we are confident we can increase the level of North-South drawdown. In Northern Ireland there are only two universities. In Ireland there are not only the universities but also the institutes of technology, so there is a much greater research community.
I would argue with Mr. Gough on that. He said earlier that the island of Ireland was very good. It is a bit misleading to say something like that when the North of Ireland is very poor at sourcing funding, especially under research and innovation. From our trip to Brussels we discovered that Europe wants Horizon 2020 to go towards generating jobs. I believe InterTradeIreland should be upfront and honest in admitting that the North is not very good at doing it and needs to improve dramatically. That message needs to be put out there instead of letting people get complacent. If the Northern Ireland economy is to be driven, we need to tell the truth that they are not quite as good as we are down here and have to learn from what is happening down here. We regularly meet our colleagues from the North and are willing to give whatever assistance we can to push them on that.
Mr. Aidan Gough:
That would be a seven, eight or ninefold increase over a period of six or seven years. They also need to set a target that is realistic. InterTradeIreland is an all-island body and not just a Northern Ireland body. We have brokered the close co-operation that is taking place. There is a recognition within Northern Ireland that closer co-operation with the South will benefit it in increasing its drawdown.
It was said that much work was put in at an early stage on Framework Programme 7 funds in the South. Our success goes back to those seven or eight years and it took a long time to get this far. Likewise, if the model can be copied the draw-down will grow in Northern Ireland. The InterTradeIreland representatives are right: there must be a realistic plan. We are looking forward to working with our colleagues on a North-South basis on this.
Dr. Eoin Magennis:
I will touch on the first question about the lack of information on lending in Northern Ireland. Not knowing how much the banks were lending to businesses in general and small and medium-sized enterprises in particular has been seen as a major hole in policy-making for several years. Basically, the approach we took was to use the same methods for the research that have been used by the Central Bank here to get information from the banks directly. We asked what their stock of lending was, what their new lending was, the numbers of applications and so forth. To give them their dues, the banks co-operated. In a sense it was a slow process because they were not used to being asked for that information. Previously, what had happened - it continues to happen - was that the Northern Ireland banks gave information to the British Bankers Association as a whole. Now, after several years of back and forth with the British Bankers' Association it looks as if the association is close enough to releasing regional figures for the North and these will give a better picture.
One thing the British Bankers Association needs to be pushed on a little further is to strip out financial intermediation and real estate from the lending to give a picture of real economy lending. That would produce something directly comparable not only to the Central Bank data but data available throughout the European Union. We would be comparing like with like, as we have done in this report. Suffice it to say the unavailability of that data until relatively recently has been an issue and a source of great frustration to policy-makers and politicians in the North. However, because we managed to get the data, it has put a little push on getting this data from the British Bankers Association, and not before time.
I thank the witnesses for appearing before the committee today. I met one of the InterTradeIreland representatives some months ago. I wish to follow up one aspect which is not altogether related to today's discussion on access to finance. It is more related to the initiative that InterTradeIreland runs for businesses on both sides of the Border to help to create the first experience of an export market. It applies to southern businesses heading up to do business in the North and the services available in the North, which seem to be rather good. The research shows that when people get experience of exporting from the South to the North they are far more capable of exporting on an international basis. This is one of the things I like about InterTradeIreland. How successful has that initiative been to date? What numbers are involved? I will understand if the deputation does not have the figures today and I realise this was not the reason they have come before the committee. What sort of improvement has InterTradeIreland identified in increasing the amount?
There is an issue with the advertising of services and businesses seem to experience a lack of information. I assume it is the same with InterTradeIreland. What is to be done, short of Enterprise Ireland, InterTradeIreland and the new local enterprise offices, when they start up, knocking on the doors of every business? Even at that some might not take up the offers available. We face the same difficulty in the political world when we are trying to disseminate information. Some people simply do not take it up.
I realise many of the people InterTradeIreland is trying to target are busy already. These are people in small companies. Sometimes the multitude of services that the likes of InterTradeIreland provides is the last thing they are thinking of, although it should be the first in many respects. What is the solution on advertising? I realise there is no silver bullet, short of knocking on the door of every business and handcuffing the people involved to their seats and putting it to them that they must listen to the message because it is worthwhile. Otherwise we will be back here in two years time discussing the matter with InterTradeIreland, the new local enterprise offices or Enterprise Ireland, and lamenting that people do not know enough.
Earlier today, the Credit Review Office released information stating that almost half of the applications that had been refused initially by banks were then overturned when they went to the Credit Review Office. This is relevant in trying to tell businesses about the advantages of going to the Credit Review Office and explaining that it is worthwhile, because the proof is in the eating of the pudding.
Mr. Aidan Gough:
The first question was about our exports programme. We have several programmes but I gather the programme referred to by Deputy Lyons is the Elevate programme, which we launched recently. We launched it some years ago. Through our survey work with businesses we realised that a large number of small or micro businesses had been doing well as the economy was doing well, but as domestic demand collapsed their business collapsed. We recognised, as did the businesses, that their survival depended on expanding into new markets and that is why we piloted the programme. The demand was far in excess of what we had expected. Following an evaluation we concluded that the initial returns were substantial for the businesses that had participated in the programme. I do not have the exact numbers before me but I can send them to the committee. As a result, we decided to ramp up the programme. We have launched it again and the demand is high. I can send the figures to the committee. There have been substantial returns for the participants and this is the reason we introduced the programme. It has been successful.
I offer one example which brings it to life. There is a small company in Donegal, Oilean Glas Teo, which makes fertiliser from seaweed. The company did not have much experience of exporting. We helped the company through an export programme and we put a salesperson on the road for the company in the North. The company got contracts with some golf clubs. Then, the company became recognised because the golf clubs were world-renowned. Then the company got orders from other clubs in England. The company is now exporting to 13 or 14 countries and its fertiliser is on the pitches in the Emirates Stadium and the Santiago Bernabéu Stadium in Madrid. That is the pathway.
Deputy Lyons referred to advertising. These case studies are important in terms of advertising as well because if we can get these case studies out then people in other businesses can come around to the view that if these companies have done it then they can do it too. In our advertising we try to put out case studies of businesses that have benefited from the supports.
I realise the State bodies group is working on the idea of a portal with access to all the supports. This is one of the recommendations in our report. Mr. Magennis has spoken to all the agencies in the South about the proposal. We hope that when it comes forward it will be a major asset in marketing the supports that are available to small and micro businesses.
I am in favour of the idea of a one-stop-shop on the Internet for the island of Ireland available to any business. I was with somebody recently who set up a formal wear clothes shop when the black-tie market was falling apart in Ireland after a major black-tie company moved out. He is singularly busy setting up his business. There must be multitudes like him. The one-stop-shop online is the best thing because we all get so many things in the post at times and we are so busy that we do not examine them. However, if people knew about a one-stop shop it could help. I hope that comes about sooner rather than later from both sides of the island.
Dr. Eoin Magennis:
The figures from the Credit Review Office suggest that half of the businesses that go to the office get their applications accepted. The key point is probably made in the report, that is, the necessity of not suggesting to a business representative when he goes to the bank that the request is not for him. The idea is that a company should make a formal application because there is no road or way through to any appeals process unless a formal application is made. We cannot emphasise that point enough. If account is taken of banking decisions, it should be through such a formal process.
If there is an accountability for banking decisions, it has to be through that formal process.
When we had people from Linked Finance before the committee, we asked them what was the best advice they could give to businesses. They said it was all about business plans. People often fail because they do not have the most robust business plan.
We had a lengthy discussion a few weeks ago with the Minister, Deputy Bruton, about the one-stop-shop on the Internet for information on supports available. There is a real urgency about bringing that on stream.
Senator Quinn spoke about financial support, financial advice and the lack of it. Is there an issue with the quality of financial advice that is tailored to small business? There are many major companies supplying financial advice to large organisations, but what about financial advice for SMEs? Dr. Magennis said that 70% of SMEs do not have a business plan. That is a frightening statistic. It is a surprise that so many SMEs are succeeding and surviving if that many of them do not have a roadmap for where they are heading. Can he comment on that? He also said that 60% consider that late payments represent a cashflow and finance issue for them. Is that right across the island? What do the witnesses consider to be late payments?
Mr. Aidan Gough:
There is certainly an issue with the quality of advice being given to the SME sector, but the SMEs must also demand the advice. It is not just the quality of advice. SMEs need to provide good quality and relevant information on what is available. They must make sure that all the advisers - the financial intermediaries, accountants and so on - are aware of these and all the alternatives. They must ensure that when businesses are making a decision to grow or to seek finance, they explore other opportunities and do not just rush to the banks. It is a complex issue but the key to it is getting more information into the marketplace.
Dr. Eoin Magennis:
The late payments issue is a vicious cycle for some SMEs whenever it comes along. One of the things we found in the research was that it was identified as an issue by many firms, and what they meant by late payments was over and above the terms of the payment date, be it 30 days, 60 days or whatever date they set. By vicious cycle, I mean that the one third of customers in Ireland - slightly less in Northern Ireland - were receiving late payments and about a fifth of that number were then increasing the length of time they were taking to pay their suppliers. The whole way along the supply chain led to a problem there. It seems to be a slightly bigger issue in the South than in the North. Perhaps that has something to do with payment culture in general, although I am not entirely sure about that. Perhaps it has something to do with the depth of the crisis that existed when we carried out the research in 2012.
Are there any statistics available on the worst offenders? There is anecdotal evidence that some of the large multiples are really squeezing small producers and putting them under pressure by not paying on time and operating policies in their stores in respect of returns and so on.
Dr. Eoin Magennis:
The research would suggest that the larger the firm, the longer the payment time to suppliers and to customers. I suspect that over recent years, the larger firms, due to their muscle, have been extending their payment terms. I know the Government has done some work in trying to reduce the length of payment terms to suppliers, but it is a tricky one and it means people are back to the business plan in respect of cash management and so on. In fairness to the banks, they have initiatives and processes in place to help firms with that, but again it is about getting greater uptake of such services from the banks in terms of cash management.
That concludes today's session. I thank both witnesses for attending. Their report was very informative and will be very useful to our discussion in the next couple of months. The report is very clear and the summary and recommendations set out the three areas on which we have to focus, namely, information, financial capability and diversity. We have argued for a long time that financial capability is quite poor in many SMEs. Many business owners and developers are quite good with their product development, but when it comes to finance, they leave it to someone else and do not get involved. We might not be in such an SME crisis if we had dealt with this before. This problem is not just to be found North and South, however, because it is to be found across Europe as well. We must work on this issue. We have many mentoring programmes but even they do not deal with the financial capability issue, which is important for a lot of decision-making. I have seen many loan applications to banks. They could not loan money on them and it is as simple as that. It was too easy during the boom time to get money and people did not have to do a proper cashflow statement. Banks have people in place now who can judge the applications. We need to ensure SMEs have people in place to put applications together. I am glad the report reinforces what we have been hearing over recent years. The report brings it all together and it will be very helpful in our discussion. We will compile our own report in the next two months which will include many of the recommendations made in the witnesses' report. I thank both witnesses for taking the time to attend. We might engage with them again at a later stage as we proceed with this.