The latest statistics from the Central Bank show that SME lending in Ireland had grown to €2.7 billion annually at the beginning of 2016, almost 5 per cent up on a year earlier and a full 38 per cent higher than 2014. Another welcome statistic was that rejection rates were down to 11 per cent from the 15 per cent rate of a year earlier. This was accompanied by a significant decline in the number of SMEs seeking credit, however, so it is difficult to tell if this figure represents a real improvement.
Another noteworthy statistic is the continuing dominance of the three main banks in SME lending, with a combined market share of 95 per cent. But there is a lot of choice out there for SMEs who wish to look beyond these traditional lending sources.
"Invoice discounting is a growth area," says KPMG partner David O'Kelly. "If you have a growing business and there is a lag between getting paid for new sales and when you have to pay your suppliers, that can create difficulties with working capital. It's a good problem to have, of course, but you need access to finance if you want to deal with the problems associated with overtrading. Invoice finance is very helpful in this regard."
Invoice finance effectively involves selling unpaid invoices to a lender who advances cash equal to a proportion of the invoices handed over. The company gets paid upfront and the lender gets a fee when the invoices are paid by the debtor.
“It provides fast access to cash tied up in outstanding customer invoices,” says Ciaran McAreavey, managing director of Close Brothers Commercial Finance. “It’s an alternative solution to traditional types of business finance and is much more flexible than an overdraft or loan. A lot of SMEs were funded through term loans or overdrafts during the crisis and the banks have been reducing overdrafts and this put a strain on their cash flows. Invoice discounting is a very flexible tool for growing businesses.”
Credit crunch
Close Bros set up in Northern Ireland in 2007 and entered the Republic of Ireland market in 2011, just as the credit crunch was at its most severe, and now has 60 people employed in Ireland. Another area in which the company specialises is asset finance. This covers traditional hire-purchase lending and loans against specific assets already owned by a business, such as a piece of machinery.
“We will cover all asset types and all sectors,” says McAreavey. “A lot of lenders will just specialise in particular types of asset such as cars or trucks; we will look at everything from a piece of agricultural machinery to a space shuttle part. We have our own team of experts in our in-house valuations department so we know the value of what we are lending against. We will also re-finance assets and this is quite unique in the market. A farmer or a factory owner might have a piece of machinery or equipment that they have paid off and they need cash to invest in the business. We will lend against those assets.”
Another company to set up here in 2011 is Finance Ireland and its First Auto Finance subsidiary. “We set up here in 2011 at a time when a lot of the major players had exited the market,” says sales director Ray Murphy. “We have had a great run since then supporting car dealers around Ireland. Last year, we funding €235 million in new and used car sales, up from €20 million in 2011. We were there through the tough times supporting the industry and we are quite proud of that.”
Outside the motor area, Finance Ireland received funding of €50 million from the Strategic Banking Corporation of Ireland (SBCI) to provide loan finance to the SME sector. “We were the first non-bank lender to receive SBCI funding,” says Murphy. “There is a gap in the market there for asset finance for SMEs and the agricultural sector. We will fund anything from cars to vans to tractors to road scrapers. One of the big advantages we offer is speed. Our customers tell us it can take weeks for a bank to process an application for even quite a small loan amount. We can do it in days or even in hours.”
Another alternative is Convertibill, which provides a range of trade finance products to enable businesses to finance their capital requirements. According to marketing manager Damian Kenny, its products allow business owners to control how they finance and grow their businesses. “Trade finance can also remove the need for personal guarantees, liens and other restrictive practices common amongst traditional lenders,” he says.
The main products offered by the company include order finance, supplier finance, invoice finance, sales finance, distribution finance, and lease finance.
“Our customers tell us the banks’ requirements, time to decision and the amount of information they need is a big barrier to approval,” says Kenny. “That’s why many businesses choose Convertibill. We can provide finance where the banks won’t and because we are smaller, we can approve faster. Also, our customers know where they stand at all times and they are not locked into onerous contracts with punishing exit clauses. Where a bank might take three weeks to make a decision, we will make it in a matter of days.”
The different forms of finance offered by Convertibill are designed to meet the varying needs of business. Supplier finance helps businesses manage their supply chains by providing them with the finance to manage supplier payments while maintaining the cash flow they need to continue trading. “By providing the cash to enable customers to finance their supply chain, we remove the barriers to business success and allow them to take advantage of bulk buying and early payment discounts,” Kenny explains.
The personalised level of service which these lenders can offer is also critically important, according to Kenny. “We sit down with our customers to understand their business so that we can provide them with the finance they need to help them grow and develop. No two businesses are alike and we pride ourselves on offering solutions which meet the specific needs of each individual customer.”
Small is beautiful
Government funded not-for-profit lender, Microfinance Ireland, (MFI), approved a record number of 397 loans totalling €5.4 million in 2016. According to MFI, these loans supported the creation and sustaining of 990 jobs, which also represents a record number of jobs supported in one year.
This brings to 2,811 the number of new jobs supported by MFI through €17 million in approved loans to 1,167 businesses since it was established as part of the Government’s Action Plan for Jobs in late 2012.
MFI offers four separate loan packages ranging between €2,000 and €25,000 to start-ups or established businesses who want to scale up, all with no fees or hidden costs. Businesses given funding in 2016 come from a diverse range of sectors, including retail, wholesale, IT, hospitality, transport, professional services, social and support services, construction, and the arts.
The interest rate on MFI loans is 6.8 per cent fixed APR for applications received through local enterprise offices, local development companies and banks. It has a fixed rate of 7.8 per cent APR for directly received applications.
“In Microfinance Ireland, we strive to quickly approve all viable business proposals we receive, achieving a core aim of supporting job-creation across Ireland and through this change communities and people’s lives for the better,” Microfinance Ireland chairman Cyril Forbes said when launching the results earlier this month. “Last year, we lent to almost 400 businesses and with the huge support of the local enterprise offices we are providing mentoring in crucial areas such as finance, marketing and planning. This is another essential aid in helping small businesses succeed. So we say: if you have a viable idea, dream or aspiration go into your LEO and together we shall help you achieve it.”