According to the latest report from Credit Review, an organization that evaluates lending decisions made by Irish banks for businesses, only 17% of Irish SMEs (small and medium enterprises) anticipate borrowing in the next six months. The report also references a survey by the European Investment Bank, which reveals that Irish firms are more inclined to use internal funding rather than seeking bank finance.
The report states that “the majority of SMEs prefer to rely on internal funding for investment rather than borrowing.” It further highlights that Irish firms heavily rely on self-financing compared to their European counterparts. However, this approach can result in inefficient utilization of resources, tie up working capital, and hinder the establishment of good credit records for businesses.
Neil McDonnell, the chief executive of small business group Isme, concurs that avoiding debts can impede growth. McDonnell emphasizes the need for external sources of working capital beyond sales revenue, stating that while bootstrapping may be suitable during the startup phase, scalability requires additional sources of capital.
The Credit Review report also identifies a challenge related to automated credit decision-making adopted by many Irish lenders. While this method improves responsiveness and efficiency for most customers, it lacks the ability to thoroughly analyze and investigate cases that require further examination. McDonnell criticizes this automated approach, claiming that it dissuades many SMEs from seeking loans due to the impersonal nature of the decision-making process.
McDonnell humorously compares these automated systems to the character “Computer says no” from the show “Little Britain,” depicting how SMEs are discouraged by the lack of interaction with decision-makers at the banks. He highlights the frustration of spending significant time and effort on loan applications, only to face rejection without any personal feedback.
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