Mr. Seán Murphy:

I thank the committee for its valuable time. It is worth reiterating some points the committee may have heard before, such as that 99% of all businesses in the State are small and medium enterprises, SMEs, so they play a crucial role in securing employment and the economic recovery. There is no overestimating the scale of the challenges they face, and we have divided those into five, which are cost of employment; the ongoing local government charges burden; an ongoing decline in town and village centres, especially spreading from the west to the east; weak consumer confidence and poor domestic demand; and access to finance. SMEs tend to operate in the domestic sector and have consequently been hit hardest by the downturn. The committee is probably aware of the recent ESRI study which made the point that we are unequalled in the OECD, excluding Iceland, in the level of peak to trough decline in domestic demand, with a fall of 20% since the downturn began in 2007.

We were asked to address sources of finance and the Central Bank distinguishes between bank credit flows and non-bank alternatives. As the committee is probably aware, we contend that the main sources of finance are direct Government interventions; bank lending, which is the most crucial and largest contributor; and individual or group investors and other alternative sources of funding. Each of these present specific challenges for SMEs.

With regard to direct Government interventions, there is the microfinance fund and the partial credit guarantee scheme, which are worthwhile and welcome. We campaigned for the partial loan guarantee scheme when it was initiated. Our view has always been that this is about getting people to look up, look out and go down to the bank to fill in a formal application, with a proper set of accounts, and go about the process of securing bank lending. That is the big game in town when it comes to financing. The partial loan guarantee scheme, while worthwhile and beneficial, has seen a tenuous drawdown. That is not necessarily a criticism but it concerns what we are discussing.

Data from a recent survey carried out by our colleagues in Cork Chamber of Commerce indicate the number of businesses reporting difficulties in managing cashflow continued to rise throughout 2013. That relates to a lack of working capital, which has had an impact. As the downturn progressed, many Government schemes were initially about investment capital when the big challenge was working capital, as slow payments by everybody affected all business. It was the big issue. We are looking forward to the next Red C survey this month as the sense we are getting on the ground is that investment demand is up in a significant way despite being pretty sanguine in the past. We are looking forward to seeing what that means in future.

The Cork survey also indicated that 68% of all businesses do not think there has been any major improvement in supports for businesses and SMEs over the past 12 months. That should be of considerable concern for the Government, given the amount of rhetoric and effort put into new schemes. There is an awareness issue, and I know Mr. Trethowan from the Credit Review Office was before the committee earlier. It has had multiple advertising campaigns and we have profiled them but businesses are still not aware of this issue.

That is a training challenge and we all have a role to play in that regard.

We recognise that the microfinance fund has been established. However we note the statistics show that fewer than half of all applications are approved and the impact on job creation, while welcome, is limited. Accordingly, we would recommend the expansion of the scheme to a broader range of businesses beyond Microfinance Ireland, MFI, just in terms of giving more options for businesses. We have also made a number of recommendations regarding the loan guarantee or partial credit guarantee scheme. They include increasing the level of guarantee, because at present the level of guarantee is quite low and is often not enough to get a credit application approved; increasing the number of financial products and sectors available for support from the scheme, because currently facilities such as overdrafts and restructures are excluded along with a number of sectors such as agriculture, and given that working capital is one of the core vital issues, we would see that it has a role to play in helping that area; removing the requirement to apply for a bank loan and have it rejected prior to availing of the scheme, which should not be strictly necessary in that if people want to avail of a scheme set up by taxpayers, they should be enabled to do so; and crucially, an increase in the term of the guarantee to at least five years, given that many business loans are for periods that are longer than three years, with five years being a typical period. Accordingly, we believe the term length of the guarantee needs to match normal loan provision.

Bank lending remains one of the most problematic areas for SMEs. Our view is that the successive surveys of Mazars and its successor, Red C, undertaken and commissioned by the Department of Finance with a significant number of participants - approximately 1,500 - are the most statistically accurate surveys available. They are not opt-in surveys; the businesses were contacted. That is a crucial issue in terms of getting the best possible result. We look forward to the survey for October 2013 to March 2014 that will come out on 12 May. The results from the most recent survey bear repeating. In the six months to September 2013, there was a marked improvement in the trading conditions for Irish SMEs with improved turnover, profit and staffing levels across different sizes and types of SMEs. However, more than one in four companies remain in challenging conditions. That is symptomatic of the overhang of the downturn, but it is worth noting that we are seven years into the downturn, so if those businesses have survived, they must be doing something right.

At this stage, rather than resulting in an increase in credit demand, these improved trading conditions have led to a reduced level of demand among SMEs in general, as working capital demand for struggling smaller SMEs reduces. Sentiment among SMEs for the future remains cautious, which could be interpreted as meaning that this apparent reduction in support demand has not as yet been replaced by growth demand. Our view is that the commentary from which we quoted on the last survey will change because our sense is that growth demand will be a lot better in the next six month report.

The overall approval rate for those seeking credit has improved. That may be as a result of those in more financial difficulty not seeking credit at this time as trading improves. The banks have also increased the number of credit decisions in the agreed timeframe and ensured that fewer SMEs can claim they were not told why they were declined. However, SMEs are claiming that more conditions are being attached to agreed credit. While demand is down, there has been a continued improvement in the perception of whether banks are lending to the sector. Significant gains were evident in the last report. However, the belief that banks are not lending remains an issue, with a significant minority - 7% - of SMEs not applying for credit because they believe banks are not lending. That is disheartening. Our view is that SMEs should get training to fill in loan applications properly, get the data they need in terms of cashflow, make a formal application and, if it is rejected, they can go to the John Trethowan organisation, the Credit Review Office, and make the proper appeal. It is disappointing that some firms are discouraged from even doing that but that is what is happening according to the commentary we hear. We contend that the only sure way to address the issue is to encourage businesses to complete the full loan application process and, if they are rejected, to appeal to the Credit Review Office.

Solid progress has been made but businesses that have banked or are currently banking with banks exiting the Irish market face a refinancing opportunity or threat. That is a major challenge for the discrete number of businesses that are in such situations. The big challenge is to ensure the remaining banks in the market have the appetite to take on those businesses. Unfortunately, there are not many statistics in that regard but, anecdotally, some banks are more aggressive than others in terms of the write-downs being offered as they exit the market. That is both an opportunity and a threat.

We have consistently profiled and supported the work of the CRO around Ireland and throughout our network. However, it is difficult to ignore the fact that despite the best efforts of many organisations and even the advertising campaigns, the number of appeals to the CRO is very low. The committee has heard the statistics in the past hour.

In terms of alternative sources of funding, we recognise that angel investors, crowd funding and other sources of finance can help SMEs survive, grow and develop. That said, it is our contention that, while welcome, they will play only a relatively small role in the business funding landscape. One sector in which we see huge opportunity - we profiled it in our last pre-budget submission - is the enterprise investment and incentive scheme, the successor to the business expansion scheme, BES, and also the seed capital scheme. We will complete a submission on the issues later this week and we will profile them in our pre-budget submission.

The other big take-away from our perspective is in the training sector. It is clear there are still skills gaps in too many Irish SMEs. Given the changed financial landscape, businesses have to upskill their financial analytical skills to enable them to talk the talk regarding securing new bank finance. We note that the national training fund, NTF, is gathered via a compulsory levy on all employers of 0.7% of salary paid. That amounts to approximately €350 million per year. The vast majority of the money is currently devoted to training for employment. Virtually no funding is available to employers to upskill either their management teams or staff. That does little to assist firms at a time when they need it most. Accordingly, we continue to call for moneys to be made available under the NTF to be ring-fenced to support owner-managers and their management teams and those who are specifically in employment to upskill themselves on cashflow analysis to enable firms to carry out the required cashflow analyses needed to complete a full and comprehensive loan application and talk knowledgeably to their banks.

We will talk about procurement in greater detail. The Government could give consideration to paying automatically the relevant interest surcharge for late payments made not just by public service Departments, but also by sub-entities of Government, such as the HSE, which I use just for the purpose of giving an example. In that way we could support businesses in their everyday cashflow, thereby reducing their working capital requirements. If the Government automatically paid the surcharge, it might be very beneficial rather than expecting a business that is selling into the entity to ask for the surcharge, which can be difficult when it is a significant customer. That is our perspective on the matter.