|Michael Noonan, Irish Minister for Finance (left) and Jean-Claude Trichet, President of the European Central Bank, in an apparent posture of friendship, prior to the meeting of the Eurogroup of Eurozone finance ministers, Brussels, March 14, 2011.|
The Minister for Finance today published some of
the suggestions sent in by members of the public in response to his call for
suggestions on how to improve the number of Irish Small and Medium Sized
Enterprises (SMEs) applying for credit.
The suggestions published were
selected on the basis of being the most frequently made suggestions,
appearing to be the most relevant to the issue of getting viable businesses
to seek credit and those that were considered the most significant.
A total of over 100 suggestions were received
and the Minister thanked everyone who put forward suggestions: “I would
like to thank all those who took the time to make suggestions on how to get
viable businesses seeking credit.
The level and quality of the responses
within such a short time frame showed how important this initiative is to
Irish businesses. My Department now has a list of suggestions that we can
work with to encourage SMEs to apply for credit,” Minister Noonan said.
The Minister took an opportunity to invite the
public to comment on the published list with a view to improving and
refining them. He stressed that his Department will be working on the
assessment of the suggestions at the same time.
Any comments should be sent to the
firstname.lastname@example.org mailbox before 31 July.
A limited number of these suggestions have been
selected for further investigation, development and implementation. These
were selected on the basis of either being the most frequently made
suggestions, appearing to be the most relevant to the issue of getting
viable businesses to seek credit and the suggestions which the stakeholders
considered most significant.
There may be regulatory or other reasons why
these cannot be implemented which have not been examined yet.
- Building trust and approachability
- Ease and consistency of applications
- Cost and Conditions of credit
- Consequences of refusal of application
- Creating alternatives
1. “MABS” type of organization should be available to businesses. It could be
populated by professionals (accountants, solicitors) currently out of work
and some experts from major accountancy bodies.
2. Design and implement a web site which would provide advice on the
preparation of cash flow projections.
3. Develop a comprehensive ‘Back to Basics’ Programme of business education and
training across Ireland that each of the four Key Players (banks,
Government, businesses and business advisors/accountants) commits to fully
introduce to their own constituent members, with the result that there will
be a significant improvement in the likelihood of viable businesses getting
the support that they need and deserve.
4. There is a need to clarify what is meant by a viable business. Banks are
saying that businesses are not viable when they would be viable if they
could get credit.
up another office similar to the Credit Review Office. Market its role as a
Commercial Credit Intermediary who would put together a credit application
on behalf of a business free of charge. Provide assurances of client
confidentiality and second a number of experienced commercial bankers from
all the banks to it.
6. Approaches to the banks at the moment are fraught with difficulty, not least
because there are no clear guidelines on whether finance is actually
available, no clear guideline on what criteria banks are applying in their
assessments of applications, no clear guidelines on what type of funding
applications will be considered eligible for funding (e.g. cars, specialist
equipment) and no clearly defined criteria for the applications. And most
companies are reluctant to apply and risk a refusal of credit on their
records – this reluctance might be overcome if they had a clearer idea on
eligibility and availability.
Building trust and approachability
- SME’s do not know who is dealing with their
accounts in the larger branches. There needs to be dedicated staff
appointed to the SME accounts held in each branch in order to build trust
between business and bank.
- The advancement of credit for SME's needs to
be given back to bank branch level. At the moment the local Bank Manager
cannot make a decision on anything, it has to go up the line to Head Office
where the person dealing with the application has no knowledge of or feel
for the applicant or the relevant business.
- Many businesses are reluctant to approach
their banks for additional credit because of the practice of banks of
revisiting all existing credit arrangements as a quid pro quo for the
granting of the additional credit. If the existing business is viable and
creditworthy, the banks need to send out a message that existing
arrangements will not be touched.
- Banks should have representatives at
shopping centres advising business owners on how they can apply for credit.
- Banks should have a presence at Marts and
Macra Na Feirme meetings so that farmers can approach them in a relaxed
- Banks should open at the weekends to allow
business customers get to the bank when their own business is closed.
- Business representative organisations should
intermediate between the banks and their members.
Ease and consistency of applications
- There should be a single application form
common to all banks for businesses seeking credit. This would significantly
reduce administrative and accountancy costs for businesses who want to seek
credit from more than one bank in order to compare prices and conditions.
- Set up a mobile phone app with the
information required to make an application for business credit.
Cost and Conditions of credit
- Clear information on the price of credit to
SMEs should be published so businesses can compare the different banks
offerings. This should include all charges which are associated with the
credit application including legal fees.
- The costs of providing security should be
reduced as much as possible.
- Banks should accept solicitor’s undertakings
in relation to SME credit in order to reduce legal costs associated with
- Grant interest free credit for new
businesses for a period of two years, allowing them to get a foothold in
their line of business.
- SMEs should be able to reduce their capital
repayments and hold the terms of their loan. This would permit them to
re-invest and increase their working capital.
- Have the Credit Review Office as a free
Consequences of refusal of application
an underwriter refuses a loan to a business it makes it much more difficult
to get approved for credit in the future as there is a “negative mark”
against the applicant. The underwriter should be obliged to outline the
reasons why they decided to refuse the application, thereby making it easier
for the business to address the problems outlined and re-apply for another
loan. There should be no “negative mark” against a business if it reapplies
- A number of SMEs are unable to obtain
suitable funding for working capital because they have no unencumbered
assets to offer the bank as security or the security available is not
sufficient to cover the facilities sought. If these companies obtained trade
credit insurance these policies could be offered to the banks as added
protection to the facilities they seek. The policy would be assigned to the
bank and any claims that occur would be paid to the bank, thus relieving the
policyholder of obligations to repay the facility.
- Create a website to bring private lenders
(such as individuals) and businesses seeking finance, together. The benefit
of such a scheme is that the lender achieves a better rate than they would
achieve if the funds were put on deposit, the borrower typically gets a
lower interest rate, and the flow of finance is in the hands of the free
- Credit unions should be encouraged to work
with County Enterprise Boards to facilitate credit to businesses. The credit
union could look at a credit proposal and refer it to the CEB if it looks
like it could be a practical proposal with extra assistance, particularly in
marketing and financial areas. CEB could mentor the business in these areas
and other areas if necessary and develop the credit proposal to a stage
where it would be acceptable to the credit union.
- Viable businesses should be permitted to
convert debt to equity. This would ease the pressure of paying interest and
repaying capital and allow time for viable businesses to turn around.
- One possible way of giving the banks some
collateral to underpin SME loans would be to allow any contributions made by
business owners to their own pension schemes through AVCs or other pension
investments to be assigned as collateral for the extension of facilities.
Alternatively, they could be cashed in for loan repayment or investment
purposes. Facilitating these pension investments to be used as collateral
for a loan to a company that an individual has an interest in would assist
the company to continue trading and access capital, while simultaneously
providing the lending institution with collateral against the drawdown.
- Provide opportunities for private
individuals to invest directly in micro and small businesses with a state
The stakeholders group consisted of
Allied Irish Bank
Bank of Ireland
City and County Enterprise Boards
Credit Review Office
Department of Finance
Department of Jobs, Enterprise and Innovation
Small Firms Association