Despite impressive economic growth in the last several years, Irish small businesses aren’t reaping the benefits that one would expect in such a vibrant environment. On the European Commission’s 2016 SME performance review, Ireland came in dead last in the Eurozone in terms of percent value added. It also holds the dubious honour of being the only member state where SMEs contributed less than 50 per cent of total value added, despite employing 71 per cent of the country’s workforce.
While other factors may also be at play, entrepreneurs and small business owners in Ireland hold that limited access to affordable financing compared to competitors within the Eurozone is holding them back. Irish small businesses cite access to financing as their primary barrier to growth nearly twice as often as EU businesses on average. Fortunately, increasing access to and awareness of alternative financing options promise to provide business owners with the funding they need to compete both locally and globally.
SMEs in Ireland are at a competitive disadvantage
The Central Bank of Ireland’s most recent SME Market Report reveals that a number of challenges are causing financing issues for small businesses in the country. As a result, only 21 per cent of Irish businesses applied for loans in the last year, more than 10 percentage points lower than the EU average. Only 20 per cent of Irish businesses fund their investments through external sources of credit, leaving the about 75 to 80 per cent reliant on internal funding to try to compete with far more financially flexible businesses both in the Eurozone and around the world.
Irish SMEs are facing uncompetitive interest rates
Businesses taking out bank loans for under €250,000 can expect to pay an interest rate of around 5 per cent. Not only is that significantly more expensive than the rates for loans in the €0.25-€1 million euro bracket in Ireland, it’s also far more costly than the 2.5% EU average for loans of the same size. This places a serious burden on Irish SMEs both in terms of competing against larger firms at home, and taking on similarly sized competitors in the rest of the EU.
Access to financing is limited compared to other countries
The number of annual bank loan applications has halved since its high point in 2013. Other things being equal, we would expect banks to accept a proportionally larger share of applicants. Instead, the rejection rate fell only slightly in recent years, and, surprisingly, even rose to 13% in the last year. This means that financing is now generally more difficult to access for small businesses than it was in the past.
Alternative financial institutions offer new options
Small businesses need access to fast and affordable financing in order to manage everyday cash flow interruptions, as well as to finance growth investment. Fifo Capital and similar alternative financial institutions offer a variety of services that traditional banks aren’t able to provide, and they can do so both affordably and quickly.
Accessible small business loans
While issuing relatively small loans under €250,000 is both risky and unprofitable for large banks, alternative financial institutions are specialised in working with small business and smaller loan amounts. Fifo Capital even offers business loans as small as €5,000. Best of all, they’ll process loan applications far more quickly than traditional institutions, usually within one or two business days. This is critical, because it means that small businesses can strategically get small amounts of funding on short notice to pursue specific goals. This flexibility helps entrepreneurs keep debt manageable and low, while still keeping funds readily available.
Non-traditional financing also offers options to small businesses that might be averse to the idea of taking on debt on general principle. Invoice financing allows businesses to sell outstanding invoices to a financial institution like Fifo Capital for most of their value. This allows businesses to give themselves an advance on outstanding payments without worrying about repayment schedules or interest payments.
Traditional financing options haven’t kept pace with the needs of the small business community in Ireland. In order to compete both within the EU and around the world, Irish SMEs stand to gain significantly by exploring the alternative options offered by Fifo Capital. To learn more about these and other solutions that are available to you and your business, please reach out to one of our representatives today.