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IRISH SMALL AND Medium Enterprises are struggling to secure credit with banks likely to pick the least risky candidates for loan approval, an expert has said.
Bibby Financial Services managing director Ronan Horgan said that the sector needs to look outside of the traditional high-street banks for finance if it is to survive.
He said: “Our experience is that the banks are probably cherry-picking to a certain extent the better quality clients.”
Horgan said that up to 80 per cent of SME lending in the United States comes from non-bank sources, and that the only way to fund the sector was for businesspeople to expand their funding horizons.
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He also said that Irish SMEs struggle to secure payment on time compared to other markets, and are often slow to aggressively pursue larger debtor companies for prompt payments.
“You’ll find in Germany they pay on time, but that’s not the case here in Ireland”
He was speaking at the opening of the new Bibby office in Dublin. The unregulated lender has been active in the Irish market for eight years, with a particular focus on the SME sector.
Bibby today also launched a bad debt protection product that covers SME owners in case a debtor company goes bust.
“One of the concerns an SME would have…is what happens if my clients become insolvent. In the event of default, they can call in that product.”
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That he is after the same clients doesnt mean his observations are nonsense. On could equally argue he has insight. so your comment is actually nonsense!
His company provides invoice discounting to clients. Not proper bank lending. And from what I hear at a nice premium above what a bank would provide (of course that’s the price for the extra risk his company takes on). That’s his take on ‘cherry picking’. So yes his ‘insight’ is nonsense.
The reality is that those who provide invoice discounting will actually have an excellent insight not only into banking but also into the realities of SMEs – possibly more so than what you refer to.as “proper” banks – as if to imply that invoice discounting is not “proper”. We have btw yet to.discover what “proper” banking is. And based on the real insight that those providing invoice discounting have gained, they are able to provide finance to our most valuable SMEs – which provide more than.60% of our employment – after the “proper” banks have cherry-picked the lowest risk customers. So a few realities of business life dispenses your dismissal of his concerns as utter nonsense!
Why do we lurch from one extreme to another in Ireland, e.g. Irish banks lending to anyone and everyone and then lending to virtually nobody at all? I think it stems from a cultural lack of patience and a disinclination to think of the effects of things in the long-run.
Can we not just adopt a cultural belief in balance and a sensible, productive (for the benefit of the economy as a whole) even-keel?
Until the true distinction is learnt in Ireland between equity and loan capital, economic recovery will be slow.
It’s a whole new banking world out there, following 08 collapse in that sector. Previously banks took on disproportionate share of risk in a client’s venture. How many SMEs had €2 of paid-up equity, with balance of funding from loans.?That was the norm in an era when banks were bursting at the seams with cheap money seeking a home, any home.
Suddenly,asset values crash in 2008 and banks can’t call in underlying security and would have collapsed but for state intervention.
The real problem then was that banks themselves had borrowed funds on own books, in addition to customer deposits, which in turn was loaned out to their customers.
Property bubble bursts and no one could repay anyone. Crisis! And here we are!
Banks have now gone the opposite way, and protect customer deposits like gold dust, and only lend to firms where everything looks perfect and pretty much risk free, ie solid security, profitable biz, good cash flow, well managed. Which is all proper banking practice!
In US 70% of start-up capital in new ventures comes from equity(family, friends, and external investors). Developed markets exist there for the provision of risk capital to assist the new Entrepreneur. In Ireland, the culture of reliance on bank funding is changing. It has to! Banks now being managed properly, with no more reckless lending, which means no more destructive bubbles.
Good item in the papers today regarding John Perry getting a 2.5 million loan from AIB after the had a judgement of 2.5 million made against him by Danske.
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