European money is finally giving Irish businesses access to cheaper loans

A BODY SET up to provide cheaper money for small firms has started to deliver savings for Irish businesses.

The Strategic Banking Corporation of Ireland (SBCI), which was set up to provide low-cost funding for SMEs, has released figures that show its loans were an average of 1.5 percentage points below market rates.

Irish companies are paying the highest interest rates in the EU at an average of 5.8% on amounts up to €250,000. Based on the data supplied by the SBCI, its clients would pay only 4.3% in interest for equivalent funding.

However the report from the state-backed corporation also indicates that getting access to finance is still a major issue for many companies.

According to its figures, taken from the European Central Bank, Ireland has the second-highest loan rejection rate in the region.

Banks knocked back 17% of applications here, behind only the Netherlands, which had a rejection rate rate of 25%.

That compared to rejection rates of only 7% and 4% in Germany and the UK respectively.

The data also shows that Irish companies tend to rely more heavily on banks for their finance than firms did in other European countries.

Across the EU, 61% of SMEs preferred to use bank loans to finance their business, but in Ireland the figure rose to 66%.

Savings

Companies do not apply directly to the SBCI for loans. Instead, the state-supported body receives money at below market rates from several sources such as the European Investment Bank and Germany’s government-owned development bank, the KfW.

It then provides some of the cheaper money to other lenders, so far mostly banks, which are then required to pass on the savings to SMEs. SBCI-backed loans are made available under special conditions and are mostly geared towards day-to-day business use.

The SBCI figures indicate its cheaper funding could be saving businesses hundreds of euro in interest each year on larger sums.

Lending so far

To date, 93% of SBCI loans have been used by companies either for investment in growing their businesses or for working capital.

The hospitality sector has been keenest to take advantage of the SBCI loans, making up over 12% of loans. Agriculture, health and retail also saw high volumes of lending.

So far, the organisation has committed €751 million to SMEs through five lending partners. Of this, €172 million has been drawn down to date by over 4,600 companies. The average loan taken out is €37,000.

The largest lender the SBCI has partnered with so far is AIB, which has committed €400 million to small businesses.

The SBCI said its lending supported 17,000 jobs in Irish businesses in 2015, as SME employment increased in 2015 for the first time since the crisis.