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Debt, Barriers & Investment Gaps

Blogs & Videos
03 May 2023

Here at the SBCI, we believe there is value in engaging directly with SME advisors to gain their unique perspectives on the Irish financial landscape and their views on Irish SMEs. The 2022 SME Advisor Survey examined challenges facing Irish SMEs as they deal with a post COVID-19 and Brexit economy and rising costs due to high inflation.

New Debt Demand and Investment Finance

Important aspects that impact the SME financing market are the demand for new debt and the sources of finance used to fund investment in business development. Our research tells us that 33% of SMEs have a high demand for new debt finance. Further analysis shows us that only 1-in-4 micro firms have a high demand for new debt finance, however, this increases significantly for both small and medium-sized firms. Also, the preference for the type of finance differs depending on the investment time frame. Most advisors tell us that SMEs elect to use their own funding as the favoured option for short-to-medium-term finance, whereas, for longer-term investments in business growth SMEs lean more towards bank lending.

Barriers to Securing Finance

When seeking to obtain finance, 2 out of every 3 advisors who responded to our survey deem personal guarantees and inadequate collateral as strong barriers to finance for SMEs. These kinds of barriers limit future investment and business growth. In the SBCI, we are keenly aware of these obstacles and are committed to addressing them by providing guaranteed loan schemes to the market. Our loan schemes are designed to reduce the cost of lending to SMEs and limit the requirement for tangible security. The recently launched Ukraine Credit Guarantee Scheme allows SMEs to obtain loan amounts of up to €250,000 without the need to provide security.

Investment Gap

The investment gap is defined as the difference between the potential values for business investment and the actual level of investments and it can be impacted by credit constraints, uncertainty in the market or other market failures preventing potentially productive business investments from being undertaken. A large investment gap illustrates that an economy is not operating at full capacity for business growth. Our findings suggest that an investment gap of 48% exists for SMEs, which means that for every possible €100m worth of investments, just €52m occurs. This value represents a notable increase from 41% in the previous 2020 report and is in a similar range to the ESRI’s (2020) analysis that notes business investment could increase by 55% if all financing constraints were no longer in existence.

Our findings note that the largest investment gaps exist within the Motor Trade (61%), Wholesale (53%), Hospitality (52%), and Manufacturing (50%) sectors. To help close this gap, the SBCI has a range of products available from our network of lending partners. We believe it is important to reduce this investment gap with financial products that focus on the investment needs of SMEs and supports their growth.

SME Financial Health Index

The SME Advisor Survey’s Financial Health Index provides us with a way to measure the sentiment of business finance among the SME population in Ireland. This is calculated using values from key questions within the survey that produce a value between 1to10. The sentiment for 2022 measured at an overall level of 4.7, indicating the financial health of the SME market is just below a moderately acceptable position. This is a small decrease from the 2020 value of 4.9. However, our survey also shows that in 2022 micro firms found the overall financing market the most challenging with an index value of 4.3.

The importance of adequate funding is crucial for business growth. As economies develop and the impact of inflation and rising prices becomes a major challenge for SMEs, the SBCI supports SMEs and small mid-caps to grow, prosper, and innovate. The full report which provides insights into additional key topics is available to download here.

Useful Supports for Businesses

More information on the SBCI’s products and partners is available here.

To view the supports available to SMEs in Ireland please see the Government’s Supporting SME toolkit.

You can contact your local enterprise office (LEO) which is available to help.

Enterprise Ireland has launched the Ukraine Enterprise Crisis Scheme and the Crisis Response Financial Planning Grant, which assist businesses with the challenges of high energy costs and liquidity issues.

The SEAI offers a range of energy efficiency training and supports for SMEs which are available here.

The Department for Enterprise, Trade and Employment have developed Skills for Better Business which will assist SMEs in their management development journey.