Small Businesses and finance
Availability of finance is crucial to small businesses and indeed the economy as a whole. SMEs are the backbone of the economy and account for 98% of all national business. Every indigenous enterprise begins as a small business and needs the right environment to grow and flourish.
One of the biggest issues facing small businesses during the recession and since, has been access to finance. This has often been seen as the banks refusing to lend money, which they did in a lot of cases but also, in recent times because small businesses often do not apply to banks for loans because of the perception that there is no point. 44% of Irish SME’s surveyed recently did not apply for bank finance because of ‘fear of rejection’ compared to 22% in Germany, 19% in Greece and 17% in Spain.
Another factor is, that having struggled through the recession people are now more risk adverse and are reluctant to borrow even though they may have a reasonably solid business which just needs some investment. Banks themselves of course are also more risk adverse nowadays having been vilified for reckless lending prior to the recession.
For whatever reason lack of finance in the SME sector is still holding the recovery back by preventing expansion and growth.
MFI
Set up in 2012 by the Department of Jobs, Enterprise and Innovation under the Action Plan for Jobs, Microfinance Ireland is a state-backed, not-for-profit lender which provides finance for approved small businesses. MFI offers loans of between €2,000 and €25,000 to companies with fewer than 10 employees, and with turnover of less than €2m.
Applications can be made through Local Enterprise Offices but unlike some finance available through LEO, all business sectors are eligible to apply for a Microfinance loan, including Sole Traders, Partnerships and Limited Companies. Loans may be used to fund the start-up of a business, the purchase of stock, equipment, machinery and business vehicles and are also available to existing enterprises.
The term of the loan can be between 2 and 5 years and there is flexibility on repayment terms.
Since its inception it has approved 867 loans out of a total of 1,826 applications received. 591 applications were declined with 317 having been withdrawn.
66 applications have been from Wexford, resulting in 33 approvals.
Overall MFI has lent €11.7m and helped sustain 2,000 jobs at a difficult time for SMEs seeking finance. Many of MFI’s clients are rural based and spread across the country often in areas which were slow to feel the economic recovery.
2015 saw a 50% increase in applications over previous years, with 752 applications compared to 508 in 2014. €5.4m was given out in funding to 357 businesses across the country, facilitating it is estimated, the creation and maintenance of 930 jobs. The average loan size granted in 2015 was €15,190.
Companies availing of MFI loans are generally satisfied with the process and the product, as a recent survey carried out by Microfinance Ireland indicates that 85% of client companies would apply for further funding, while 96% would recommend the lender to others.
The Future
The present Minister for Jobs, Enterprise and Innovation, Mary Mitchell O’Connor and her officials are negotiating another €10m in Exchequer funding which would be combined with additional bank funding of €15m, in order to keep the fund operating beyond 2017, in line with company law requirements.
Last week MFI announced a reduction of 1% in the interest rates it charges, with the standard fixed rate of APR dropping from 8.8% to 7.8%. (the interest rate for other new loans from Local Enterprise Offices has been reduced from 7.8% to 6.8% maintaining the 1% differential there has always been between the two).
It has also announced a mentoring/ support programme aimed at offering expert assistance to approved loan applicants, in partnership with the nationwide network of Local Enterprise Offices.
Now micro businesses can apply for finance through either channel and avail of expert one-to-one mentoring.
These developments will be of great benefit to small businesses in not only making finance cheaper but also helping to ensure they reach their full potential and sustain more jobs into the future.
By securing additional funding, reducing interest rates and providing mentoring for clients MFI will continue to support local enterprise, further economic recovery and develop business growth overall.
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