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NEW RESEARCH FROM the Central Bank has revealed the overall level of small and medium enterprise debt for the first time.
The research suggests that over one third of SMEs carry no debt whatsoever, with 84 per cent having a debt to turnover ratio of less than one third.
We’ve known for quite a while that many SMEs that do have loans are struggling to repay them: 32.4 per cent of the total aren’t performing and are classified by the banks which originally lent them out as impaired.
However, this research adds an overall picture of the indebtedness of the SME segment, something that has been lacking until now.
It reveals that there is a comparatively small slice of the SME market which is heavily indebted and is at greater risk of collapsing under the weight of its debt burden.
This sub section of companies, that have debt greater than their entire annual turnover, is only 7 per cent of the market.
The paper states:
The data suggest that incidences of extremely high indebtedness (a Debt to Turnover ratio of greater than one) are not as common in the Irish SME population as might be expected given the extent of difficulties in Irish SME loan repayment.
The paper finds that companies with a higher debt to turnover ratio are associated with increases in default rates and decreases in solvency.
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The article cites nearly one third of small business’ not in debt…..know why?…..because most of them are being run by people who do not collect a proper living wage. I know lots of small retailers on less than 200 euro a week. And that’s the God’s honest truth of the matter!
Very good point.
Absolute fact, sme carrying the burden as always what a bunch of fools we really are
Correct and right and the revenue think all business people are flying around in helicopters living the high life. Far from it.
The reason we have no debt is because we can’t get loans . To expand . But how many owe revenue and suppliers money that thy have no way of paying
Lot of businesses that were carrying sizeable debt have gone to the wall, in many cases these were viable if the Revenue and the State and Banks had worked with them.
Killing all the sme’s who weren’t in with anything but immaculate financial health and cash flow tends to distort the end result.
No evidence for anything you just said. Could be true but no evidence
David.
You are either being willfully obtuse or you have no idea of what it has been like to be an SME trader for the last 5 years.
I’m saying making claims with no evidence adds nothing to discussion and is just moaning.
The Irish revenue isn’t traditionally unduly harsh and the banks want to recover as much money as possible. If you have any evidence show it.
Making decisions around insolvent companies is difficult but I don’t think Irish practices are any different to international practices.
Any evidence? I mean any papers at all?
The Central Bank report looked at companies in 2012 and 2013 only.
As some highlighted above a lot companies that where insolvent have been liquidated prior to these years.
Secondly as someone working in B2B area. Suppliers are not extending credit accounts to NEW companies, companies say that where started in 2012 and 2013.
Suppliers are encouraging those who had credit to pay proforma for an extra discount.
Thirdly as rightly highlighted above. Banks are not lending. Banks have taken away overdraft facilities and replace them with credit cards due to Bassel 3 banking capital requirements.
Lastly the report only looks at SME s. And they are missing information on sole traders.
Why would a supplier extend credit to new companies with no track record?
Irish businesses are utterly dependant on banks / suppliers to fund working capital. This mindset has to change. If businesses are to grow they need to be doing things like seeking out opportunities to merge or be open to private investment in return for a shareholding.
it is odd the way a lot of pessimists can try and turn good news into bad news.
I run a small business and I know what I am going through and laughing all the way to the bank is not one of them
I also run a small business and I am doing quite well. I do not laugh all the way to the bank but I do whistle a few nice tunes.
I own an SME.
Banks do not play fair, they are totally unapproachable.
The number of businesses indebted by a factor of debt to turnover ratio that’s greater than one is not a very good way to measure the situation given that turnover is usually calculated annually whereas many loan terms extend well beyond 1 year.
The figures also fail to outline how many indebted companies are no longer in existence due to liquidation etc. The SME sector was promised much by this Fine Gael / Labour government, but it was mainly hot air and election speak. (Noonan is up to the same old tricks today as it happens – 7 days before more elections).
Common sense is the one thing lacking in political parties such as Fianna Fail and Fine Gael who have been sharing power since 1922 in a YoYo fashion but never take any responsibility for their failure to grasp reality and be pragmatic.
I for one am not standing for it any more and starting on the 23rd May, I am letting them know! If you care about this country, you should consider ignoring the mainstream media and their various diabolical “political commentators” who spin the same guff week after week. Inform yourself, read the policy documents from other parties such as Sinn Féin and then listen to what they say and more to the point, look at the responsible way they act when elected and when making sensible proposals.
Change is a four letter word folks – V.O.T.E.
Enough is enough!
Include all the closed shops and businesses over the past 18 months. People are now using statistics which are based on the businesses left open of which the bigger multiples are tilting figures to suit a report.
Its called “the real world ” Richard Rodgers!
This is news?
You think it is not?
I’m familiar with many SME’s accountants and am surprised that it is high.
Who informs you.?
So the idea of debt forgiveness for this small section of the SME sector would be madness as the idea was based on kick starting the economy. Clearly this minority of Companies wouldn’t be able to kickstart a motorbike and to target them with further free investment so to speak would be throwing good money after bad.
Isn’t it extraordinary the way the whingers and the spongers and the needy and the wheezy and the poor mouth minorities all have a tale of woe at election time and isn’t it extraordinary the way our politicians pander to them?
Any small company owner taking on staff should be given tax relief as an encouragement and those which are lame ducks should be cut adrift.
Ok, it’s unpopular to ask if common sense is news.
SMEs can’t afford interest or overdraft. The statistics here reflect actual behaviour, not what we learnt in school. When a business has to focus on survival, thoughts of expansion go out the window.
So while it looks what is reported here is prudent, what is actually being reported is that businesses in this recession are surviving to the extent that that is all they can do.
You can’t talk it up, they deserve a different kind of support. Tax relief doesn’t create customers.
Eh no….
what
b.s
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