Irish small firm financing: Where are we 20 years since the financial crisis?

The impact of credit markets on economic activity came to the fore in Ireland following the 2007 global financial crisis. Significant challenges in the banking sector led to a severe contraction in credit availability, in particular for small- and medium-sized firms. During the crisis, this credit crunch had an impact on investment activity and employment (Gerlach-Kristen et al., 2015), and caused considerable financial distress (Lawless et al., 2015). The collapse in the banking sector led to systemic changes in financial intermediation such as competition issues and market exits, changing risk appetite and new macro- and micro- prudential regulations. 

Since the financial crisis, the Irish economy has recovered and grown robustly, even in the face of the repeated economic shocks of recent years (Brexit, COVID-19, the war in Ukraine). However, credit levels in the economy have not recovered to the same extent. Indeed, recent research has pointed towards lower than expected investment by Irish small firms and a continued reliance on internal funds when financing capital outlays (Lawless et al., 2020; Gargan et al., 2024). 

To attempt to better understand the credit landscape in Ireland for small enterprises nearly 20 years on from the onset of the financial crisis, this research paper revisits trends in credit access and places these trends in a pan-European context. It also explores some of the major SME bank financing policy changes that have occurred in Ireland since the onset of the financial crisis, and places these changes in the context of developments in the operating landscape for firms.