'Viable businesses will be forced to close unless new lending model implemented' - according to new book launched at DCU today

2 June 2010

Pictured were Professor Ferdinand von Prondzynski, President, DCU, Dr Ciarán Mac an Bhaird, author and Mr Batt O’Keeffe TD, Minister for Enterprise, Trade and Innovation

New means must be found to advance funding to SMEs, according to a new book, 'Resourcing Small and Medium Sized Enterprises', which was launched today by Mr Batt O’Keeffe TD, Minister for Enterprise, Trade and Innovation, at DCU.

The book by Dr Ciarán Mac an Bhaird is the first study of its kind in Ireland.

“The development of a vibrant, sustainable small firm sector is dependent on sufficient resourcing of SMEs”, said Ciarán Mac an Bhaird. “SMEs are struggling to survive and viable businesses are in difficulty because of liquidity problems. If this problem persists, viable businesses will be forced to close, resulting in increased unemployment”.

Dr Mac an Bhaird surveyed the ‘Next 1500’ list of firms, and of these, 300 firm owners provided details of the sources of finance they employ at various stages of firm development. They stated their preferences for financing, their perceived availability of financing requirements, pertinent issues in raising finance, and perceived constraints to firm growth and development.

According to the book, the lending model employed by banks was always inefficient and unsatisfactory as it was based on access to collateral in the form of land, property, plant and equipment. This model was particularly severe on young, promising high-tech firms with no hard assets.

"At present, banks are seeking to shrink their balance sheets. Lending to the SME sector is severely constrained, resulting in businesses being starved of cash and experiencing severe liquidity problems, with some collapsing as a result. No alternative model is proposed despite repeated pleas from SMEs, politicians and ministers", said Dr Mac an Bhaird.

"SMEs have been largely ignored in media and public discourse over the past decade, as attention was focused on Foreign Direct Investment, particularly US multinationals investing in Ireland. This is despite the fact that SMEs account for 70% of employment in the non-financial business sector and almost 60% of value-added to our GDP”, he said.

'/Resourcing Small and Medium Sized Enterprises/' provides an examination of the financing of SMEs, a cornerstone of the Irish economy. It details financing practices and preferences of Irish firm owners, their experiences of raising finance, and their views on finance provision.

“The information gleaned from this benchmark study greatly increases our knowledge and understanding of the sector, and is valuable for policy makers and practitioners working to ensure the sustainability and growth of the sector”, Dr Mac an Bhaird said.