Credit Demand Survey shows significant recovery in overall SME performance compared to 2020

The Department of Finance has today published the latest in its series on SME Credit Demand Surveys which covers the period April – September 2021. This survey series is currently being conducted by Behaviour and Attitudes, on behalf of the Department of Finance. It is the most comprehensive survey of SME Credit Demand in Ireland, covering over 1,500 respondents through in-depth discussions. The survey ensures that it captures a full picture of the SME landscape in Ireland, with micro enterprises, small-sized enterprises and medium-sized enterprises accurately represented as per the percentage make-up of SMEs in Ireland.

While the survey is conducted biannually, for presentation purposes, the report uses year-on-year comparisons. Due to COVID-19 impacts only one survey was conducted in 2020, covering the period March to October.

Key results include:

• on trading performance, 46% of SMEs reported increased turnover, 31% reported stable turnover and 24% reported a decline in turnover in the six months to September '21
• a majority of SMEs (57%) reported profit in 2021, compared to 31% in 2020 and moving closer to the 69% of SMEs that reported a profit in 2019. The number of SME’s reporting a loss was14% reported a loss in 2021, while 26% broke even
• trading conditions have improved significantly, coming close to the levels recorded pre-pandemic, in September '19
• 17% of SMEs applied for bank credit (-1%, 2020 and -3%, Sept '19), with only 7% expecting to apply for credit in the following 6 months
• of those SMEs that applied for credit 40% sought it for a new business venture, acquisition of assets or expansion, up from 16% in October 2020
• the average loan size was €208,469, an increase from €192,185 in October 2020
• 9% of all SME credit applications were declined from April - September '21, though this rate was 21% for micros
• one third of all SME expenditure was accounted for by the purchase of goods and services, and a third by wages and salaries, while less than 2% of all expenditure was accounted for by interest and debt payments
• 39% of SMEs reported that they had no debt in September '21
• when questioned about government supports, awareness was greatest for Enterprise Ireland and Local Enterprise Office initiatives at 87% and 79% respectively
• on the type of government support SMEs prefer 42% would like a longer-term investment loan scheme with loan repayment term, with some SMEs preferring credit guarantee schemes (21%) and working capital loan scheme (18%)

On the publication of the SME Credit Demand Survey, Minister for Finance Paschal Donohoe stated:

Background of report

The SME Credit Demand Survey has been conducted biannually since 2011 to monitor trends in access to credit by SMEs. Please note while the survey is conducted on a 6 monthly basis, for presentation purposes, the report uses year-on-year comparisons.

The report published today presents the results from the SME Credit Demand Survey April – September 2021. Conducted by Behaviour and Attitudes, all interviews took place between 18 October and 29 November 2021.

The department has conducted the SME Credit Demand Survey in order to have an independent and statistically significant report into the Irish SME landscape and the availability of, and demand for, credit that exists for SMEs. The survey was conducted through a telephone survey covering over 1,500 businesses. It drew a carefully constructed sample from a large database of SMEs, made repeated calls to ensure a full response and asked factual questions. The full questionnaire is included in the report. See the report and previous reports.

Summary and key findings

The following is the summary of results from the SME Credit Demand Survey April – September 2021. Throughout the report, the most recent wave of findings is compared with corresponding waves from previous September survey waves. This ensures that historical comparisons are being made on a like-for-like basis, taking any seasonal issues into account. Please note that due to COVID-19 impacts only one survey was conducted in 2020, which covered the period March – October, and this is used as the 2020 comparison.

Demand for Bank Finance

• 17% of SMEs surveyed applied for bank finance in the six months to September '21, compared to 18% in October '20, and 20% in September 2019
• only 7% of SMEs expected to apply for credit in the following 6 months, a 5% decrease from the October 2020 response, and a significant 11% decrease from Sept 19
• 63% of SMEs said that they did not seek credit as they did not need it, while 40% said they had sufficient internal funds
• new loans and leasing/hire purchase were the main bank finance products requested, while requests for overdrafts, both new and restructures, have declined compared to Oct '20
• among those SMEs with outstanding loans, the average cost of credit for September '21 was 4.59%. 33% of SMEs surveyed did not know the cost of their outstanding loans, as is the case historically

Application process

• 40% of SMEs sought finance for a new business venture, acquisition of assets or expansion, up from 16% in October '20. While 37% of SMEs requested bank finance for working capital/cash flow, this is down from 59% in October '20
• the average amount sought was €208,469 – up from €192,185 in October '20; however it is still below the pre-pandemic level of September '19 (€265,686)
• as is expected there is a significant difference in average values applied for by company size, with small (at €150,798) and medium sized companies (at €364,369) seeking higher levels of new bank finance than micro firms (at €64,307)
• 9% of all SME credit applications were declined from April - September '21

Trading performance

• 46% of SMEs reported increased turnover in the 6 months to September '21, compared to just 12% in '20. 31% reported no change in turnover, while 24% reported decreased turnover, (+3%, September '19)
• both Construction and the Hotels & Restaurants sectors reported significant growth in 2021. However, Hotels & Restaurants continue to have the highest proportion of respondents that reported a decline in turnover (39%)
• 57% of SMEs reported profit during 2021, compared to 31% in 2020. This remains lower than the 69% who reported profit in 2019
• 14% of SMEs surveyed reported a loss in 2021, while 26% broke even

Operating expenditure and SME debt

• the average SME operating expenditure was c. €2.6 million (€6.6 million for medium sized companies and c. €312,000 for micro enterprises) from October '20 - September '21
• one third of all SME expenditure was accounted for by the purchase of goods and services, and a third by wages and salaries, while less than 2% of all expenditure was accounted for by interest and debt payments
• 39% of SMEs reported that they had no debt in September '21
• 53% of all SME outstanding debt is to retail banks, 46% is to non-banks, while credit unions account for 1%

Government supports

• awareness was highest for Enterprise Ireland initiatives (87%) and Local Enterprise Office initiatives (79%)
• the main reason for not applying for government supports is that SMEs do not need this type of financing (74%), while 6% claim it is due to lack of knowledge about government support schemes
• when asked about what type of government support SMEs prefer, 42% would like a new longer-term investment loan scheme with a long repayment term. 21% would like a credit guarantee scheme, while 18% would prefer a new working capital loan scheme with a short repayment term