SMEs push government on funding start-ups

Sunday Business Post - News Feature - Dec 28 2008

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Business representatives are calling on the government to address the funding shortfall facing start-ups in 2009. Patricia Callan, director of the Small Firms Association (SFA), said that the government’s €10 billion bank rescue plan, announced earlier this month, would do little to help young businesses dependent on bank lending.

‘‘I certainly do not think that the recapitalisation of the banks will have any direct impact on lending. We propose that the government, rather than just guaranteeing the banks, should guarantee the loans they give to small business,” said Callan.

‘‘The banks say they are giving out the amount of start-up finance and credit based on the current economic climate, and irrespective of the credit crunch. I do not think anyone believes that.”

As a potential solution, JJ Killian, chairman of the Irish Small and Medium Enterprise Association (Isme), urged the government to consider nationalising one of the Irish-owned banks, which could then provide credit to entrepreneurs who need it.

‘‘We could look at a situation where the state takes over a bank and runs it similar to the way ACC was run in the past. It would be a government bank and could guarantee loans to small businesses in various parts of the country,” said Killian.

He said the ‘‘state of inertia’’ gripping the Irish economy required decisive government action to return some degree of confidence.

‘‘Confidence is the critical factor in the economy at the moment. The confidence has been wiped away at every level,” he said.

‘‘The person who can afford to buy something this week, and is in a steady job, will not do it because everybody has become so cautious.

‘‘We need confidence to rebuild at every level, from the governments to the banks to the small business owners to the man in the street. The only way to rebuild this confidence is to find away to get money moving again.”

Claims among the country’s banks, that business lending activity is continuing, are misleading, said Killian.

‘‘They are open for business in that you can walk in and apply for credit, but they are not open for business in that there has been a subtle ratcheting-up of the criteria applying to companies looking for credit,” he said.



Callan agreed that start-ups seeking bank finance faced an uphill struggle. ‘‘The reality is that things have changed. The banks all talk about funding sustainable businesses, but that comes down to a personal decision,” she said.

‘‘How people are being treated is different now, whether it is the amount of detail they have to provide when making applications, the length of time it takes to make a decision, or the requirement for a personal guarantee to get a loan.”

Business owners who succeed in securing credit face higher rates, said Callan. ‘‘I would be particularly concerned at the cost of finance, which is a direct result of the high cost of money on the international markets due to the credit crunch,” she said.

‘‘We asked people whether the cost of finance increased over the last six months of 2008. Fifty-one per cent of our members said the cost of finance for working capital had increased, and 39 per cent said the cost of finance for investment purposes had increased.”

Callan said she was optimistic that the investment capital sought by the Irish banks from the European Investment Bank (EIB), earlier this month, would be made available.

‘‘The banks have met with the EIB and sought funds from the €15 billion fund that was set up for SMEs,” she said.

‘‘There was some dispute over whether that was for working capital or not, but my information from the EIB is that it can be given in the form of two-year term loans, which is just the type of finance that people need at the moment.”

Killian said that the government should ensure that any EIB funding secured would be made available to start-ups and small business owners.

‘‘The government needs to make strenuous efforts to go after the EIB funding,” he said. ‘‘There should be some way of channelling that so that we can see what is happening, and to make sure that it comes into the small business sector.”

Callan said that there were signs that the banks would make this money available to Irish small business owners and entrepreneurs.

‘‘In one week in December, each of the four major banks announced major SME funding initiatives. They are all saying they will retain their current levels of business and have given guarantees of new funds, so there should be more money available,” she said.

She pointed to some other potential sources of funding for new businesses.

‘‘First Step is a specific micro-finance funding initiative, which gets most of its money directly from the European Investment Bank.

‘‘The local county and city enterprise boards can give grants and finance, and we are putting pressure on the government at the moment to expand their operations.

‘‘If you are high-growth and exportdriven, you can go to Enterprise Ireland.”

Callan said that, despite the funding difficulties facing start-ups, new businesses continued to set up around the country.

‘‘Start-up numbers were up to maybe 18,000 in 2007.The numbers were distorted, though, by a lot of small construction companies starting up, which will now be out of the mix.

They might come back to around what we used to have, which was 12,000 or 13,000 per year.”