Tom Barry (Cork East, Fine Gael) | Oireachtas source

I thank the Minister for his time and I recognise and value his interest in this crucial area. There is no doubt that the contraction of our banking sector will cause inconvenience but we must remember that the fall-out of 250,000 people losing their jobs in the private sector from 2008 to 2011 has reduced demand. As someone who has been involved in business I do not mind travelling a little further for my business banking if the bank I am involved with is actually banking. Most of the small and medium-sized enterprises that have survived so far have achieved a good deal. It has not been easy. The banks have not been lending in recent years and to survive, all costs have had to be examined, frills eliminated and the quality of service and product have had to be maintained.

We have travelled so far in this journey but I believe the real challenge lies ahead for SMEs. The challenge is equity. Not many people have mentioned it in the House tonight and it disappoints me when the Opposition does not mention it because it displays a lack of understanding of SMEs, even if the sentiments are well-placed and well-meaning. Why is equity so important? It is because most established SMEs do not have enough equity or have negative equity. The reason established SMEs are in this position is due to their previous strong financial positions as a result of which they diversified in several ways. Some took a play in the property market. Typically, this had a 50% write-down. If SMEs were unlucky enough to be enticed or targeted by some larger banks to invest in foreign property schemes, the write-down could be 100%. Others expanded optimistically and over-invested in equipment and buildings and now have a large capital expense with lower turnover and margin.

Today, in this world of reality, SMEs will survive but survival is not good enough. Entrepreneurs like me did not establish businesses simply to survive. We want to expand and grow. However, we will not grow without equity. Simply put, the issue of core and non-core debt needs to be tackled quickly. Onlookers and those not involved in business can be of the opinion that all that is important is cashflow. I smile when armchair experts look at me knowingly and say that it is all about cashflow. Survival is all about cashflow but expansion is about equity. Let us face it: in business a person does not consider expansion if his cashflow is poor, but without equity the consideration of expansion will not become a reality. Strong earnings will enable SMEs to afford taking on new investment projects and successfully repay the greater borrowings. However, if SMEs fail due to equity concerns, one of the ways to expand is to attack new projects on a piecemeal basis, although this will delay the time in reaching the new target. This may seem a reasonable approach but business waits for no one. First, indigenous jobs are not created immediately and second, if the market exists it will be supplied and that may come from expanded imports. Requirements not being filled between suppliers and customers puts doubt in the relationship between both parties and that is not good.

There have never been more opportunities for expansion and the Government has offered real and sustainable programmes. The JobBridge programme and the JobsPlus programme have been outstanding examples. JobsPlus offers employers €7,500 towards employing new staff members. It is an important scheme and I welcome it wholeheartedly. This is a great time for SMEs to expand and to put together a loyal and committed workforce. Gone is the casual approach of many employees towards employment and customer service which plagued our economy during the Celtic tiger years. I commend the Minister on his engagement with the European Investment Bank to channel more streams of funding towards SMEs.

What are the solutions? I suggest an evaluation should be carried out by the pillar banks to assess core and non-core debt. Only by knowing the extent of the problem can it be rectified. Some SMEs have never failed to make a loan repayment on an interest and principal basis but they have been designated as part of the pillar banks' bad bank. Some SMEs which have never been restructured on a loan due to financial distress also find themselves in the bad bank. Some SMEs have made substantial profits throughout the difficult years but are also part of the bad bank. Once an in-depth analysis is conducted, solutions to these ridiculous situations can be put in place. These will possibly include the direct recapitalisation of non-core business but it is an unlikely option. However, blanket recapitalisation of banks is a blunt instrument. The non-core SME debt should be re-financed over a longer term or else they should avail of lower interest rates. SMEs would also benefit if the non-core debt was State or European-guaranteed. This is similar to the partial loan guarantee fund for smaller loans. It would cost little since most of these SMEs are already feasible. Many SMEs would agree to a reasonable levy to partake in the scheme which would free the equity associated with non-core assets and open up the way for new business loans and job creation. Let us remember that getting a loan now takes time and proper analysis. There is little chance of repeating the poor lending practices which took place in this country and led to many of the problems we have.

We need to protect our SMEs and allow them to borrow once more by solving the non-core debt issue. If this does not happen, then for the next ten to 15 years these successful companies will be excluded from progressive expansion. As I stated earlier, standing still is not an option. Anyone who sets up a business or anyone involved in business wants to expand and that is the final letter on it. A ten-year sin bin may will condemn many SMEs to a slow wind-down. Many of the owner-directors in existing SMEs will be looking at retirement rather than expansion in ten to 15 years time and it is important to recognise this.

This is a work-in-progress and I recognise the work done to date by the Minister and the Government. The progressive approach taken towards business with the Action Plan for Jobs, the jobs initiative and Pathways to Work represent the first time SMEs have been engaged with and taken seriously. The National Pensions Reserve Fund and the National Treasury Management Agency funding offer great potential and I am delighted to hear it. It delivers something more important: hope to all of us who have clung on in recent years, who have kept people employed and who have fought against the odds. I have no doubt we will succeed and I thank the Minister.

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