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SAFE: SME Sentiment in a Covid-19 and Brexit World

The key findings of the survey have been summarised by SBCI Research Specialist Conor Neville PhD

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01 Feb 2021

SAFE: SME Sentiment in a Covid-19 and Brexit World

At the end of November 2020, the European Central Bank published the main results of the Survey on the Access to Finance of Enterprises (SAFE) in the Euro Area, which covered the period from April to September 2020.The results provided some engaging insights into the impact of Covid-19 and uncertainty of Brexit on SMEs throughout Ireland and the rest of the euro area. The report illustrates the importance which SMEs place on business issues, financing gaps and their approach to debt finance. The total euro area sample size was 11,019 enterprises, of which 10,042 (91%) had fewer than 250 employees.

Challenges Facing SMEs

22% of euro area SMEs cited difficulty of finding customers as their main concern (up marginally from 21% in the previous survey that covered the period October 2019 to March 2020). The next area highlighted as a concern was the availability of skilled labour at 19% (down from 24%). The impact of Covid-19 is particularly evidenced by the labour market challenges, whereby many SMEs have decided to put their investments on hold while dealing with lockdowns and new restrictions, and finding customers becomes more challenging as people are working from home and the online shopping has increased exponentially.

Access to finance has become a more important in most countries, however it was still considered the least important issue over the past 6 months for both Euro area SMEs (10%, up from 8%) and Irish SMEs (8%). This may be due to accessibility to retained earnings which have been built up over the preceding years or finance from friends and family. But whether these sources of finance will be able to sustain such businesses in the long-term to, deal with the challenges of Covid-19 and Brexit remains to be seen.

External Financing Gaps

The external financing gap of Euro area SME has remained an issue overall. Covid-19 has reduced SMEs’ capacity to access external funds relative to their financing needs. The external financing gap of Irish SMEs increased to 5% (up from -1%), which indicates that there is a gap emerging between the availability of funding and accessibility to same. This value is similar to euro area SMEs at 5% (up from 2%).

These figures indicate that access to finance is emerging as a challenge for SMEs across the Euro area.

Views on Bank Loans

For the period from April to September 2020, 50% of the Euro area SMEs considered bank loans as a financial instrument for their businesses.

Interestingly, Irish SMEs appear more reliant on bank loans with 57% of Irish SMEs indicating bank loans as a financial instrument for their business.

Looking at the demand for bank loans, Euro area SMEs reported an increase in the demand for bank loans to bridge their liquidity gaps. In net terms, Euro area SMEs reported a substantial increased need for bank loans (20%, up from 8%),

In this survey round 38% of Euro area SMEs had applied for a loan (up from 21% in the previous pre Covid-19 survey).

Although the previous figures note a positive view on banks loans amongst Irish SMEs, no such increase in applications is evident with, 20.66% of Irish SMEs applying for a loan in the April to September 2020 period, a minor increase from the previous period of 20.38%.

This finding may indicate that Irish SMEs are less likely to access debt finance than their European counterparts although their view on debt finance is more positive than Euro area counterparts.

Subsidised Loans

In Ireland, 55% of SMES viewed grants or subsidised loans (i.e. loans that involve support from public sources in the form of guarantees or other interventions) as a potential source of finance (up from 37%). For Euro area SMEs, 45% indicated that subsidised loans (up from 42%) were of interest.

The use of subsidised loans has reached its highest level (25%, up from 11%) since 2009, when the survey began. In Ireland the use of grants or subsidised loan use has increased significantly to 31% (up from 10% in 2009).

The challenges that Covid-19 and Brexit continue to pose for SMEs are unprecedented, but the range of funding supports delivered by the SBCI in conjunction with the Departments of Enterprise, Trade and Employment and Agriculture, Food and the Marine may assist businesses in dealing with these challenges. Find out more at sbci.gov.ie