Appetite amongst Ireland’s smallest firms for State-backed loans began reverting to normal levels in 2021 after record borrowing last year to cope with the impact of Covid-19.
overnment loans to micro-enterprises quadrupled in 2020 as business owners scrambled for funds amidst the pandemic, according to a new Department of Enterprise report on lending by Microfinance Ireland (MFI).
However, both demand and approvals for the small-scale loans fell back dramatically in the first quarter of this year, despite a Level 5 lockdown being in effect for all three months.
The results suggest a diminishing need for fresh capital among the smallest businesses even as Covid restrictions on commercial activity entered a second year.
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MFI, which offers loans to companies with fewer than 10 employees or less than €2m in turnover, approved just €2.4m in loans to 157 business in the period January to March 2021.
This compared to more than €27m for more than 1,200 companies in total for all of 2020, by far the agency’s biggest year for lending. The next highest annual lending amount in MFI’s eight-year history was in 2019, when 452 businesses got offers for €6m.
MFI attributed the increase in demand for loans last year to the availability of Covid-19 and Brexit loan products specifically targeted to businesses affected by lockdowns and trade disruption.
The agency expects demand to pick up again this year as the economy re-opens and businesses required capital for running costs and investment.
“Performance in Quarter 1 was surprisingly strong during a period of economic uncertainty, ongoing lockdown and a lack of clarity as to when the economy will reopen,” the report stated.
“In particular, demand for our standard products was excellent. This is very positive for the economy, as it highlights the desire from businesses to either start up or expand. The Covid-19 product also experienced surprisingly good demand during a period of prolonged lockdown. This demand should grow as the economy reopens and businesses need funds to commence trading.”
MFI is just one small piece of a sprawling State financial support net for SMEs that has sprung up to deal with the deep economic impact of the pandemic.
To date the Government has funded or guaranteed €1.7bn in lending and grants to small businesses, mainly via the Strategic Banking Corporation of Ireland (SBCI), which administers big lending programmes like the Covid-19 Working Capital Scheme, Future Growth Loan Scheme and the Covid Credit Guarantee Scheme.
Wage subsidies, tax deferments and other payments add another €8.8bn to the total of Government backing for businesses whose revenue has been negatively affected by the pandemic.
A survey of finance professionals conducted last week by accountancy body ACCA and Grant Thornton of found that one in three believe small firms will require even more State support in the months ahead as more companies get back to work.
However, just 7pc said that State loan programmes were the most effective form of financial support for enterprises in need of cash.