New SME loans decline as € 60m Covid program approved
New loans to small and medium-sized businesses fell 20% last year as businesses sought to use their own funds to weather the Covid crisis.
Aversion to taking on more debt has also contributed to the drop in demand for credit from financial institutions, according to a new report from the Central Bank.
The news comes as the European Commission on Tuesday approved a new state-supported € 60 million program for SMEs affected by the Covid crisis this year.
According to the Central Bank study, which covers the period from March to December, 18% of SMEs applied for credit compared to 20% in 2019, the majority of those who requested it for working capital needs.
The rejection rate for credit applications, at 15 percent, was virtually unchanged from previous years, but rejection for part of the requested amount increased.
Banks reported a tightening of credit standards for SMEs, but a relaxation of standards for secured loans when the credit guarantee scheme was introduced in the second half of the year.
Almost two-thirds of Irish SMEs saw a drop in net turnover, and although many have adjusted to this through reduced spending and the use of state aid, the declines in turnover cases were only partially offset, with companies recording losses on average in 2020.
More losses are expected to accumulate until the pandemic recedes, the central bank said.
The report’s publication coincides with the approval by the European Commission of the Small Business Assistance Scheme for Covid.
Applications for the program were opened early last month. It is open to SMEs with turnover between 50,000 and 25 million euros, which employ 250 people or less and are not eligible for support under direct sector grants.
As part of this scheme, direct grants of up to € 4,000 for the first quarter of 2021 are paid to help companies with fixed costs. Payment in the second trimester is also possible.
The turnover of the companies applying for the grant must not exceed one quarter of the average weekly turnover of the company in 2019 during the application period.