20. Ireland
Irish SMEs account for 99.8 percent of all active enterprises and to 68% of those employed.
Debt levels of Irish businesses are declining steadily, and have reduced 53% since 2010, from EUR 27.1 billion to EUR 12.8 billion in 2020.
Gross new lending to core SMEs was EUR 2.9 billion in 2020, representing a 20% annual decrease. This decline is likely driven by a demand-side challenge. Survey data from the SME Credit Demand Survey show that SMEs in Ireland are choosing less to access bank credit. In 2020 this is explained by the size of direct governmental support during the COVID-19 crisis, which included direct grants and payments to closed or impacted businesses, tax warehousing, the Employment Wage Subsidy Scheme (EWISS) within others.
Loan approval rates continue to be stable, with 85% of all applications for the period March – October 2020 (excluding “still pending”) either being fully or partially approved.
The interest rate spread was 1.94, between large (2.23%) and small loans (4.17%), a slight decrease from 2019 levels.
The amount of venture capital raised by Irish SMEs increased in 2020, to EUR 820 million, marking an 11% increase on 2019 figures, this growth represents the same percentage increase as from 2018 to 2019 and is explained by base effects of the significant decrease from 2017 to 2018. Figures for Q1 2021 show continued increase in activity, with 74 companies receiving funding compared to 43 in the same quarter last year.
Significant progress has been made towards resolving SME NPLs in recent years and though there has been a slight increase in NPLs over the course of the COVID-19 crisis in general terms trends continue to move in a downward trajectory.
The Irish Government has implemented a range of measures to assist SMEs in dealing with the consequences of COVID-19 restrictions, and to ensure that SMEs continue to have access to sufficient liquidity. These include tax measures and loan schemes to assist SME, as well as direct support including the Employment Wage Subsidy Scheme (EWSS) and Covid Restriction Support Scheme (CRSS).
Ireland’s National Promotional Bank, the Strategic Banking Corporation of Ireland has worked closely with the Department of Enterprise, Trade and Employment, the Department of Agriculture, Food and the Marine and the Department of Finance in the design of and implementation of a number of credit related support schemes including schemes aimed at SMEs affected by COVID-19 restrictions, such as;
The overriding objective of these schemes is that credit is available at competitive prices for those firms that require it.
Credit Review was established in 2010 to assist SME or farm borrowers who have been refused bank credit, including a SBCI product. It helps SMEs who have had an application for credit of up to EUR 3 million declined or reduced by the main banks, and who feel that they have a viable business proposition. This is a strictly confidential process between the business, the Credit Review and the bank.
SMEs are a vital component of the Irish economy, as they comprise 99.8% of active enterprises and 67.5% of all persons employed. Large enterprises make up the remaining 0.2%, these are mainly made of Foreign Direct Investment companies who employ the remaining 32%. SMEs generated 56.2% of total turnover in the business economy and 37.3% of gross value added in 2018, the latest year figures available for Ireland.
Annual gross new lending to core SMEs declined to EUR2.9billion by 2020 Q4 – down 20% on 2019 Q4. Declines occurred in all major sectors but remain above levels in 2016 Q2 and earlier.
The Central Bank of Ireland reported that to the end of Q4 2020 the outstanding stock of Irish SME credit was EUR 19.8 billion, of which EUR 12.8 billion was core SME credit, which is defined as SMEs from non-financial and non-property related sectors. This continues the steady decline of the outstanding stock of core SME credit, which has reduced by 53% since 2010. This continued decline of outstanding stock over the past years has occurred as demand for credit has been steadily decreasing and the high levels of debt acquired by SMEs during the boom have consistently reduced.
The Irish Department of Finance conducts an SME Credit Demand Survey biannually of over 1500 SMEs, to identify what are the main challenges that they experience when accessing credit. The results from these surveys provide important information on the financial issues and challenges facing Irish SMEs.
The latest survey, covering March to October 2020, shows that SME demand for credit decreased to 18% in 2020 (compared to 20% in 2018 and 40% in 2011) while, of those SMEs that did not access credit, 72% cited they had sufficient internal funds as their reasoning. Other stated reasons for not requiring bank finance since the onset of COVID-19 pandemic, included a desire not to be indebted (19%), a belief that current lines of credit were sufficient (13%), a general preference to use internal finance (13%) and a view that their business generates sufficient revenue (12%).
When looking at approval rates, 85% of all SME credit applications were fully or partially approved at the time of surveying.
The average cost of credit reported by the Central Bank of Ireland for outstanding loans was 4.17% down from 4.2% in 2019. 35% of respondents to the SME Credit Demand stated they were not aware of the interest rate attached to their outstanding loans. Interest rates in Ireland are higher than the European average, however consecutive surveys have shown that only 1% of respondents reported cost of credit as their reasoning for not seeking it. This compares to an average 2.23% interest rate for large firms, which is a 1.94 percentage points interest rate spread.
Equity Finance
Data for venture capital was provided by the Irish Venture Capital Association (IVCA) and includes both funding by business angels as well as venture capital funds. Growth continued in 2020, with an increase of 12.8% recorded. This growth has continued in Q1 2021, with growth of 8.9% recorded year on year. There has also been an increase in activity, with 74 funding rounds in Q1 2021 versus 48 funding rounds in Q1 2019.
Venture Capital funding in Ireland has grown steadily over the last number of years. In 2014 total funding was just over EUR 400 million, this had increased by 2020 to EUR 820 million. This represents an increase of 130% in funding between 2014 and 2020 and an annual growth rate above 25%.
This growth has been driven by a number of factors, the maturation of the local VC industry, the participation of international funds, the growth in private equity participation and the increased support of the Irish State through the Enterprise Ireland Seed and Venture Scheme and the newer role the Ireland Strategic Investment Fund has played in the sector.
Business Angel Investments
Business Angels are important to the funding eco-system for SMEs in Ireland. Halo Business Angel Network (HBAN), a joint initiative of Enterprise Ireland and InterTradeIreland, is responsible for the promotion of business angel investment in both Ireland and Northern Ireland. HBAN actively works to increase the number of angel investors involved in early stage investments and supports the formation of new and existing angel networks, both regionally and internationally, and within industry sectors. Over EUR 14 million was invested across 59 deals in start-up and early-stage companies in Ireland in 2020.This compares to EUR 12.1 million invested across 44 delas in start-up and early-stage companies in Ireland in 2019.
Corporate bankruptcies in Ireland are dealt with under three different processes: liquidation, examiner-ship and receivership. In Ireland the figures provided are from insolvent company liquidations.
A company may be liquidated by:
Bankruptcies in Ireland decreased by 27.5% in 2020, to their lowest level since 2007, and a return to the continuance of a downward trajectory. This was partly due by the widespread take-up of 6 month loan payment breaks offered by banks and other non-bank lending institutions which were available to SMEs directly impacted by COVID-19.
Just 10% of pre-Covid invoices owed have remained unpaid by customers since the onset of Covid with no difference by company size reported.
46% of SMEs report that 0% of the invoices they were owed pre-Covid remain unpaid. The average SME reports just 10% of pre-Covid invoices remain unpaid.
Government policy since 2011 focused on ensuring that all viable SMEs have access to an appropriate supply of credit from a diverse range of bank and non-bank sources. In this regard, the Government has developed a number of initiatives to ensure that the supply of credit in the market is sufficient to meet the existing and future funding needs of SMEs. With the imposition of necessary restrictions due to the onset of the COVID-19 crisis one of the Irish Government’s main concerns was to ensure that SMEs had access to sufficient liquidity, and that access to credit for SMEs was maintained. The Government announced a range of measures to assist SMEs deal with the consequences of the COVID-19 restrictions, and to ensure that they have access to sufficient liquidity. These include direct grant supports, tax measures, as well as loan schemes, to assist SMEs.
Direct Government Supports for SMEs include;
The Employment Wage Subsidy Scheme (EWSS) and the Pandemic Unemployment Payment (PUP). The EWSS provides a flat-rate subsidy to qualifying employers based on the numbers of eligible employees on the employer’s payroll, and is currently in place until end December 2021, while the PUP is available to all employees and self-employed who have lost their job due to the Covid-19 pandemic;
Covid-19 Restrictions Support Scheme (CRSS), which offers targeted, timely and temporary sector-specific support to businesses forced to close or trade at significantly reduced levels as a result of restrictions imposed in response to Covid-19. The relief operates as a cash payment equal to 10% of the average weekly value of the 2019 business turnover up to EUR 20 000 and 5% thereafter, subject to a maximum weekly payment of EUR 5 000, for the same number of weeks as the restricted period. The Irish Government further announced on 1 June 2021 that an enhanced restart week payment – a single payment of three double week to businesses upon re-opening (subject to a maximum of EUR 30 000) will be provide to SMEs. This will provide additional support to the businesses in restocking and making the necessary preparations to welcome their customers back in a safe manner.
The Credit Review Office
The Credit Review Office was established in 2010 to help SME or Farm borrowers who have had an application for credit of up to EUR 3 million declined or reduced by participating banks, and who feel that they have a viable business proposition. The Credit Review Office also looks at cases where borrowers believe that the terms and conditions of their existing loan, or loan offer, are unfairly onerous or have been unreasonably changed to their detriment. This is a strictly confidential process between the business, the Credit Review Office and the bank.
The Credit Review Office received 1,165 formal applications by the end 2020. Of these, 788 have reached final conclusion, with the Credit Review Office upholding appeals in favour of 451 borrowers, including those with a commitment to reassess the lending in the future if agreed performance hurdles are met in the short term. The upheld appeals resulted in EUR 63.2 million in credit being made available to SMEs and farms, helping to protect/create 4,372 jobs.
SBCI
Established in 2015, the Strategic Banking Corporation of Ireland (SBCI), is Ireland’s National Promotional Institution. The SBCI’s goal is to increase the availability of appropriately priced, flexible funding to viable Irish SMEs. The strategic mission of the SBCI is to deliver effective financial supports to Irish SMEs, and in time, other sectors, to address gaps and failures in the Irish credit market, while encouraging competition and innovation and facilitating the efficient use of available EU resources. The SBCI achieves this through the provision of low cost liquidity and risk-sharing activities supporting the provision of appropriately priced, flexible funding to SMEs.
The SBCI’s risk sharing capability and products were developed further with the launch of several products aimed at ensuring that viable SMEs impacted by Brexit or COVID-19 would be able to access appropriate finance;
Brexit Loan Scheme/COVID-19 Working Capital Scheme
The Brexit Loan Scheme launched in 2018 and makes lending available to Brexit-exposed businesses with up to 499 employees to help them innovate, change or adapt to overcome their Brexit challenge. The maximum interest rate is 4%. Loans range from EUR 25 000 to EUR 1.5 million, with unsecured loans of up to EUR 500 000 and terms ranging from 1-3 years.
As at 10 May 2021, there have been 1,267 applications for eligibility under the scheme, of which 1,078 have been deemed eligible, and 290 businesses have progressed to sanction at finance provider level to a total value of EUR 58.06 million.
In March of 2020, in response to the onset of COVID-19 in Ireland, a proportion of the funding made available under the Brexit Loan Scheme was repurposed for use by eligible businesses impacted by the pandemic. Under the COVID-19 Working Capital Scheme loan features are similar to those of the Brexit Loan Scheme. As at 10 May 2021, there have been 4,524 applications for eligibility under the scheme, of which 4,038 have been deemed eligible, and 1,018 businesses have progressed to sanction to a total value of EUR 138.48 million.
Future Growth Loan Scheme
Launched in 2019, the Future Growth Loan Scheme initially made up to €300m in lending available for terms of 7-10 years as a means of addressing a lack of availability of long-term loans in the marketplace. In response to COVID-19, the scheme was expanded by EUR 500 million in July of 2020.
Loans under the scheme range from EUR 25 000 to EUR 3 million, with loans of up to EUR 500 000 available unsecured. The initial maximum interest rate is capped at 4.5% for loans up to EUR 249 999 and 3.5% for loans more than or equal to EUR 250 000 for the first six months. The rates thereafter are variable. These rates represent a significant saving compared typical SME lending in the market. The Scheme is available to business with up to 499 employees and operators in the primary agriculture and seafood sectors.
As at 17 May, there have been 8,863 applications for eligibility under the scheme, of which 8,380 have been approved, and 3,298 loans have progressed to sanction to a total value of EUR 681.58 million.
Brexit Impact Loan Scheme
Work is also under way on the development of a Brexit Impact Loan Scheme, which will provide affordable financing to businesses that have been impacted by the UK’s withdrawal from the EU and in light of the dual disruption of the COVID-19 pandemic. This scheme will open to SMEs and small mid-caps, including those in the primary agriculture and seafood sectors. The scheme will be delivered by the SBCI through commercial lenders and will make a fund of up to EUR 330 million available to eligible businesses with up to 499 employees.
Loans under the scheme will range from EUR 25 000 to EUR 1.5 million, with loans of up to EUR 500 000 being made available unsecured. These loans may be used for liquidity or investment purposes. These loans are for terms of up to six years.
The Brexit Impact Loan Scheme is expected to launch in mid-2021.
Credit Guarantee Scheme
The Credit Guarantee Scheme was launched in October 2012, to facilitate additional bank lending to eligible SMEs. The Credit Guarantee Scheme offers State guarantees of up to 80% on loans ranging between EUR 10 000 and EUR 1 million in value and are provided to banks against losses on qualifying loans to firms who would otherwise have difficulty getting credit.
The Credit Guarantee Scheme is open to SMEs. The aquaculture, primary agriculture, financial services, education, insurance services, property owners and investment industries sectors are not eligible for the scheme.
Reforms to the Scheme were provided for in 2016 amending primary legislation. The revised scheme was launched in July 2018 and provides;
An increase in the level of risk the State will take from 75% to 80% of individual loans
An extension of the scope to cover other financial product providers, like lessors, invoice discounters etc.; and
An extension of the definition of loan agreements to include non-credit products and overdrafts.
The legislation underpinning the revised scheme also empowers the Minister to give counter-guarantees that will enable the SBCI (in their capacity as a National Promotional Financial Institution) to unlock matching guarantee facilities from EU sources and thus better share risk across banks, the Minister and the EU.
The SME borrower pays an annual premium (currently 0.5%) to the Government in addition to the interest rate/fee charged by the bank.
Covid-19 Credit Guarantee Scheme
The EUR 2 billion Covid-19 Credit Guarantee Scheme was launched in September 2020. The Scheme provides an 80% State guarantee on lending for terms between 3 months and five and a half years and offers a range of lending products between EUR 10,000 and EUR 1 million including working capital and term loan facilities. Loans up to EUR 250,000 are unsecured. The Scheme is available to SMEs, small Mid-Caps and primary producers.
As a result of the high level of the State guarantee, loans are being provided at interest rates lower than the current market rate for similar loans. The Scheme was developed in accordance with the European Commission’s Temporary Framework and will be available until 31st December 2021 in line with the Framework. Borrowers pay a small premium as required by the Framework.
Since the Credit Guarantee Scheme became operational in October 2012 up to 31st December 2020, 2,637 loan facilities totalling EUR 224.5 million have been sanctioned/drawn, of which EUR 98 million was drawn under the Covid-19 Credit Guarantee Scheme.
The Scheme has helped to support 17,942 jobs, of which 10,590 have been supported under the Covid-19 Credit Guarantee Scheme.
Microenterprise Loan Fund
The Microenterprise Loan Fund was established in 2012 to make loans available to viable micro-enterprises with commercially viable proposals in order to sustain and create jobs. Microfinance Ireland (MFI) was set up to administer the Fund on behalf of the Minister for Business, Enterprise and Innovation.
Businesses can apply for an unsecured loan of between EUR 2 000 and EUR 25 000 for working capital, equipment, start-up costs, or marketing purposes. The loan term is typically 3 years for working capital purposes and can be extended to 5 years for capital expenditures. Interest rates range from between 7.8% for direct applications to 6.8% for Local Enterprise Office clients.
In response to the onset of the COVID-19 pandemic, MFI introduced its Covid-19 Business Loan in March 2020 to assist those microenterprises where business has been negatively impacted, resulting in a reduction of 15% or more in turnover or profit. These loans are available interest free for the first 6 months and with reduced interest rates, of between 4.5% and 5.5%, for the remainder of the loan. Loans taken from September 2020 can also avail of a government rebate for interest paid in months 7 to 12. Loans were initially available up to EUR 50 000, this limit was reduced in September to a maximum limit of EUR 25 000 in line with MFI’s standard business loans.
From the 1st Oct 2012 to 31st December 2020, the Fund approved loans to 3,632 micro-enterprises for a total value of EUR 61.4 million, of which EUR 27.4 million was approved in 2020 alone. These funds supported 9,002 jobs.
Seed & Venture Capital Scheme
The Seed & Venture Capital Scheme (2019-24), operated by Enterprise Ireland, aims to foster a strong pipeline of high growth, innovative businesses in the Irish economy by increasing the availability of appropriate sources of risk capital for start-up/early-stage businesses with high growth potential at each stage of their development and by signalling strong Government support for an innovative enterprise culture
Under the most recent Seed and Venture Capital Scheme (2019–2024) a fund of EUR 175 million was announced. This fund was further increased to EUR 185 million following the 2020 July Stimulus package by the Minister of Finance.
Two calls for expressions of interest have taken place with four funds established to date. This has leveraged additional capital to a total combined fund size of over EUR 340 million, with Enterprise Ireland committing over EUR 60 million in total to these funds.
A third call for expression was announced in March 2021 targeting the Pre-Seed, Seed & Series A/A+ stages, in EI target sectors including ICT, Lifesciences and Industrial. Up to EUR 82 million may be committed as part of this call, with a maximum of EUR 20 million to any individual Fund.
Ireland Strategic Investment Fund (ISIF)
The Ireland Strategic Investment Fund (ISIF) invests on a commercial basis in a manner designed to support economic activity and employment in Ireland. To ensure efficient delivery of funding to the SME sector, the support of which requires large volumes of granular debt and equity investments to be made in underlying SMEs, the ISIF will generally target investment in private sector entities that interface directly with those SMEs. Programme terms are flexible, once the underlying requirement that the funding is provided on a commercial basis is met. ISIF is also operating the Pandemic Stabilisation and Recovery Fund, which focuses on investment in medium and large-scale enterprises in Ireland, making capital funding worth up to EUR 2 billion available to medium and large enterprises on commercial terms.
References
Central Bank of Ireland, SME Market Report 2021: https://www.centralbank.ie/docs/default-source/publications/sme-market-reports/sme-market-report-2021.pdf?sfvrsn=4
Central Bank of Ireland, Trends in Business Credit and Deposits: Q4 2020: https://www.centralbank.ie/docs/default-source/statistics/data-and-analysis/credit-and-banking-statistics/business-credit-and-deposits/2020q4_trends_in_sme_and_large_enterprise_credit_and_deposits.pdf?sfvrsn=6
Credit Demand Survey, March – October 2020: https://www.gov.ie/en/publication/5239d-sme-credit-demand-survey-march-to-october-2020/
Credit Review Office, The Credit Review Office Twenty-first Report, 2021: https://www.creditreview.ie/publications/
Central Statistics Office, Statistical Yearbook of Ireland 2020: https://www.cso.ie/en/releasesandpublications/ep/p-bii/businessinireland2018/smallandmediumenterprises/
Department of Business, Innovation and Enterprise: https://dbei.gov.ie/en/
Enterprise Ireland, https://www.enterprise-ireland.com/en/funding-supports/
Ireland Strategic Investment Fund
Irish Venture Capital Association, http://www.ivca.ie/
SCBI, Strategic Banking Cooperation of Ireland, https://sbci.gov.ie/for-sme-advisors/products-2