One in Four SME’S in Default on their Loans. A Growing Epidemic?


The Basic Facts

One in every four loans to Irish small and medium-sized businesses was in default at the end of last year, based on Central Bank’s SME Market Report. The numbers show that just over 26 per cent of all loans to the sector were in default, meaning that repayments on these debts were 90 days or more overdue. Even more worrying was that 41% of loans to Small and Medium Sized Enterprises are in arrears at any given time. When it comes to defaulting on loans, the smallest and largest loans carry a higher default risk than those in the middle. Among the largest loans, SME default rate is 48 per cent. The default rate also is shown to increase among the largest 25 per cent of loans. The sectors receiving the most gross new lending over the period 2010 to 2013 has been the primary sector, which includes agriculture, forestry and fishing, followed by the wholesale and retail trade sectors. With regard to credit demand, the application rate has remained stable between 35% and 40% at March 2013 to 35% at March 2014. Credit demand is higher for small and medium firms than for micro firms. At the end of 2013, the average SME owed its bank €71,101 and was paying interest at 6.41 per cent.


Is Your Sector Still Struggling?

The default rate is highest for SMEs in the construction, hotels, restaurants and personal sectors. Default rates were unsurprisingly highest amongst building companies, who continue to struggle as new builds are at an all-time low. Companies in this sector had fallen behind on more than 60 per cent of the amount that they owe their banks. Areas also suffering were the hotels and restaurant sectors. This shows that businesses requiring significant capital investments are more at risk to struggle. Businesses requiring rental premises may still be locked into high cost legacy arrangements and are finding that the cost of doing business is very high with little sign of improvement. This is backed up by the reports finding that when it comes to credit the demand for working capital and restructuring purposes is “outstripping” that for investment or growth purposes. The most commonly requested type of loan was renewal or restructuring of an existing overdraft. Only one-in-four applicants were seeking cash to fund growth and expansion, while 61 per cent cited working capital requirements as the reason for their credit application. This clearly isn’t a positive sign as it highlights the fact that many businesses in struggling sectors are still in survival mode rather than growth orientated. How can a business grow if it is merely surviving?


What can be Done to Help Struggling Businesses?

While sentiment in the business environment has been improving in the last couple of years the reality on the ground is that small businesses are still very much struggling to maintain their financial footing and that paying all of their bills is still a major issue. With 41.4 per cent of the total balance owed by the SME sector was overdue this is clearly demonstrating that revenues and cash flows are suffering in the SME sector and that financial pain is still being felt despite some positive echoes elsewhere in the economy. Every small business will have their own tales of woe with some issues specific to the individual business while many others will be common to the sector. Lack of credit, rejection of credit applications, businesses dissuaded from applying for credit lines, upward only rent arrangements, business services taxes, high costs of employment, lack of SME business supports (when compared to larger enterprises) and high cost of growth are all limiting factors to the sector that have yet to be tackled head on. Governmental action on these areas has been slow with many business feeling left behind through no fault of their own. Small businesses will argue that they are being squeezed from many angles and don’t know where to turn for support. Do they continue to plow on hoping that something positive will change in the near future or alternatively look for other organisations that can support and help their business develop?


Avid Partners Working with the SME Sector

Avid Partners have worked with a range of small businesses in financial distress. In our experience struggling with legacy debt and fluctuating revenues is not uncommon and many companies find dealing with such areas very stressful and delay positive action as a result.  Avid Partners have recent experience in assisting clients in the areas of Cash Flow Management which stops the bleeding of finances and gave the company time to get back on its keep. Bad Debt problems has also been a problem area for many companies who through no fault of their own may have positive sales and revenues but little money available to them week to week. We have implemented a number of successful Debt Retrieval programmes to revive clients businesses and get them through a rocky time and back on track. Avid Partners Business Turnaround Programmes focuses on identifying short term problems, implementing solutions and putting structures in place so that such issues are not repeated. Once the short term stability of the company is achieve we then work proactively with the organisation on Positive Growth Strategies like expansion programmes, staff recruitment, corporate management, diversification and acquisitions strategies. These are the directions that small business how be going but can’t as they feel stuck in a rut. Sometimes the simple reality is that businesses need some help and support from experts in their field. A new drive ad energy is what can be required to get a business back on track. Experience counts for a lot when your businesses survival is at stake.


Contact Avid Partners today to see how we can assist your company if you are experiencing similar issues. We are happy to help in any way we can and can work with your business in any number of ways that could prove invaluable in driving your business forward. Email us at, call us on 01 4286900 or visit our website for examples of the businesses we have helped over the years.