Thursday, 12 July 2012
I am bringing in a series of targeted initiatives to make it easier for micro-enterprises and small and medium enterprises to access credit. The micro-enterprise loan fund scheme, which is expected to be operational from early autumn, will facilitate up to €40 million in additional lending to micro-enterprises over the next five years. The Government is in the process of introducing the temporary partial loan guarantee scheme for micro-enterprises and small and medium enterprises which, because of a lack of collateral or the sector in which they operate, face difficulties in accessing traditional bank credit.
These initiatives coupled with the recently launched second call under the innovation fund and the development capital scheme will strongly contribute to addressing the credit needs of business and facilitate business modernisation and expansion, in addition to the creation and maintenance of jobs.
Furthermore, the Minister recently met the CEOs of the two pillar banks to impress upon them the importance of keeping their lending practices in tune with the changing needs of Irish companies. Enterprise Ireland is working closely with the banks to develop credit propositions for exporters and technology companies that are suited to different stages of growth - start-ups, early stage and mature companies - and to adopt cash flow lending as opposed to the asset-backed approach that has been the norm in recent years.
My Department is working closely with the Department of Finance and the Credit Review Office to evaluate evidence on credit availability and ensure the amount of credit flowing to the SME sector is maximised to facilitate sustainable job creation and retention.
My colleague, the Minister of State responsible for small business, Deputy Perry, continues to meet business owners on a regular basis to hear at first hand their views and experiences and to examine further the actions that might be taken to improve access to credit for SMEs.
Credit comprises one of the four pillars of a properly functioning enterprise sector, in addition to keeping costs down, ensuring there is not over-regulation and that regulation is fair, and ensuring demand. Demand is extremely important. Credit in this State is dysfunctional, for a number of reasons. The primary reason is that the troika dictates that the banks must have accelerated deleveraging from the market, which means they will reduce their exposure over the longer and shorter term to small businesses. The Government has produced a number of schemes that should help small businesses. We applaud them but there is a major difference between the proportion of the problem and the proportion of the response.
A problem we highlighted an Committee Stage when dealing with legislation in this area concerned many of the schemes of the Government. The interest rate charged to businesses reduces their ability to service loans or to make a profit on loans.
The major issue for me is that the European Central Bank reduced its rate to 0.75% this week, yet the lowest rate we could find for businesses was 6%. The previous Government put €64 billion into the banks and is a major shareholder therein. The Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, said he met the banks. Has he asked them to reduce the rate of interest they offer to small businesses?
There is ongoing dialogue between the Government and the banks through the Economic Management Council to ensure there is a flow of credit to entrepreneurs and businesspeople. One can say objectively that, in lending practice, the rate offered to businesses is always above the normal interest rate.
I wish to make two key points. The Irish Small and Medium Enterprises Association, ISME, claims that almost 50% of its members still have difficulty getting credit. When the European Central Bank, ECB, started reducing rates for domestic mortgages, there were interesting pictures of an emboldened Taoiseach claiming that the Government had put it up to the banks to get them to reduce the burden on mortgage holders. Has the Minister asked the banks to reduce the rate they charge to small businesses?
The Deputy referred to ISME's report, but there is also a Mazars report. The Credit Review Office, CRO, is our benchmark, but should not be viewed as a permanent fixture. According to a figure in the Mazars report, a demand survey showed that only 36% of SMEs sought credit in the April-September period. As the domestic economy recovers and SMEs seek to increase working capital, the demand for lending will increase and two factors will point to CRO assistance being required. The ultimate aim is to drive credit through the system
The relatively poor capital and liquidity conditions of some SMEs following three years of a flat-lining domestic economy is one of the factors. Some of the SMEs that bank with the Irish Bank Resolution Corporation, IBRC, will seek new credit and will need to be moved to new banks. If those banks are unwilling or unable to provide that credit when the upturn arrives, it will be another factor. If the Deputy will bear with me, I am looking for the figures.
The economic management council, EMC, engages with the banks to ensure that they deliver. The Deputy must acknowledge that they have delivered on their 2011 lending targets. I am struggling to find the figures on the percentages in terms of credit. They were to hand.
The report compiled by the accounting firm Mazars showed that 67% of completed credit applications were approved by the banks, representing an increase of 2% on the previous year's report, with the rate of refusals falling by a corresponding amount of approximately 28%. Despite the downturn, the report indicates that some companies are still in a position to protect their finances from potential problems.
It is important that we give ISME, the small business community and its other representative organisations their due regard, but it is also important that we be objective in our interpretation of the figures. If one drills into the figures, one will realise that some of the results in the survey to which the Deputy referred were based on media perceptions of credit. It is important that we assess the qualitative criteria.