SME Financing: Recent Trends and Policy Options

Conference: "SME Financing: Recent Trends and Policy Options"

The financial crisis in Ireland has brought to the fore concerns regarding access by SMEs to both bank and non-bank finance. Of critical importance to economic recovery is ensuring that firms have the means to invest and grow. This ESRI/Department of Finance conference brings together policymakers, researchers and wider stakeholder groups to explore the recent trends in relation to SME finance, evaluate the effect of SME credit access on the wider economy and review the policy response. Please find below short  summaries of the presentations to be given at the conference, with contact details for the appropriate speaker. Presentation slides will be available to download from our website on the day of the event (19 April). For further information on the conference please visit our website. Members of the Media are invited to attend the Conference.  

SME Credit Constraints and Macroeconomic Effects Petra Gerlach-Kristen, Brian O'Connell and Conor O'Toole, ESRI The research shows that finding customers for their products or services is the largest problem for small and medium enterprises (SMEs) in Ireland today. Credit constraints rank third as a problem and affect only a small minority of SMEs (between 4 and 11 percent, depending on the classification). Most SMEs do currently not apply for funding because they do not need it. Those facing credit constraints are mainly young, small firms and firms that have a domestic customer base and a debt overhang. Their main response to the constraints is to reduce investment and jobs. Clearly this has immediate and longer-term consequences for employment and economic growth. Consequently it is appropriate that policy explores ways of reducing these credit constraints. Measures tackling specific problems, such as the Microenterprise Loan Fund, seem particularly promising. The extent to which the financial system can provide adequate funding for firms once aggregate demand recovers remains an open question. Further research on the financing of SMEs is needed to establish this.

Factors Affecting Euro Area SME's Financing Conditions: Identifying the Cause of Heterogeneity Across Countries Sarah Holton, Martina Lawless and Fergal McCann, Central Bank of Ireland This paper uses survey and market data to identify SME credit supply constraints and heterogeneity across euro area countries during the recent crisis. Overall we find that fragmentation in sovereign bond yields, or “risk free rates”, has affected credit supply. Even after taking account of borrower quality, changes in sovereign yields and banks' refinancing costs, there is evidence of a credit crunch in certain countries. We find that domestic demand and the level of private sector debt have had a significant impact on the supply of credit to SMEs.

Review of the Equity Investment Landscape in Ireland Adrian Devitt, Forfás While continued efforts are required to address banking issues, promoting equity investment represents an opportunity to support growth oriented viable businesses and to provide alternatives to bank funding, particularly for indebted firms. We need to place a stronger focus now on encouraging private sector investment in productive firms. The argument for a greater range of financing options is strong. More varied financing options gives businesses greater choice, promotes competition amongst finance providers, potentially reduces cost, and leads to greater resilience in the financial system. While external equity investment is only a viable option for a minority of firms, our research highlights that its use is growing. The provision and use of equity is largely guided by the market but there are actions the State can take. A wide range of initiatives are underway but there is potential for further additional actions to address the issues which concern both businesses and investors. While many entrepreneurs voice concerns over the lack of equity funding, investors cite the absence of viable projects as a key barrier to investment. The report sets out a range of recommendations for entrepreneurs and firms seeking funding and for investors. Note to editors: Forfás, the policy advisory board for enterprise, trade, science, technology and innovation, recently published a report on the Irish equity landscape which was a deliverable under the Government's Action Plan for Jobs 2012.

Note to Editors: Members of the Media are invited to attend the Conference "SME Financing: Recent Trends and Policy Options" at the Economic and Social Research Institute, Whitaker Square, Sir John Rogerson's Quay, Dublin 2 on Friday 19 April 2013, from 08.30 to 12.30. For further information and the full Programme please visit the ESRI website. The Conference presentation slides will be available to download from our website on the day of the conference.