It’s been a year of uncertainty for Irish SMEs, with continued speculation over the final outcome of Brexit dominating 2019. The upcoming UK general election may or may not bring greater clarity, but businesses up and down the country are already looking ahead to the new year, and putting plans in place for 2020. While the demand for credit to support these plans remains strong, Irish SMEs are having to contend with an increase in loan refusal rates from the major lenders – up from 33% to 58% according to a recent report from the Irish SME Association. In addition, 75% of SMEs believe that banks are making it more difficult to access finance.
This is all the more regrettable given that rising costs, increased competition and a lack of skilled staff remain challenges for many SMEs, as our own research in the recently published SME Ireland Confidence Tracker for Q3 of 2019 revealed.
Despite these challenges, the research also showed how SMEs have been innovating and adopting new measures to help cope with these and the fallout from Brexit. In particular, SMEs are increasingly looking to establish new supply sources for goods as a means of diversification and protecting themselves against any issues that may arise in the supply chain.
"Over a third of SMEs say new supply sources are now in place"
Over a third (38%) of SMEs say these new supply sources are now in place, while a further 32% have negotiated new agreements with buyers and suppliers. In addition, one third say they have applied for some form of business funding in the past six months.
The proportion of SMEs exporting and importing has increased in line with this, by 8% and 6% respectively, compared to Q1 of this year. However, our survey also revealed that, while almost two-thirds (64%) of Irish SMEs believe Brexit will have a negative impact on their business, a third of businesses have not prepared for it in any way.
This will be a cause of concern for political and business leaders across the country – especially should a no-deal Brexit come to pass. However, this reflects a wider trend which charts a dramatic drop in confidence in the Irish SME sector over the past 12 months. This has seen average planned investment fall to an average of just €80,000 for the next three months – a 40% drop when compared with Q3 of 2018. In addition, less than half of all SMEs surveyed expected sales to increase over the next three months.
"Half of SMEs aren't intending to invest because of economic uncertainty"
The major causes of this downturn in confidence are clear: half of all SMEs not intending to invest cited the uncertainty arising from the UK’s exit from the EU, while 45% also pointed to an uncertain economic environment within Ireland. For those that are investing, a need to reduce operating costs and increase efficiencies was cited as the primary reason by 30% of businesses, followed by a need to stay ahead of competitors.
It’s clear then that Irish SMEs are cutting their cloth to suit their needs, and insulate themselves as much as possible from Brexit-related disruption. But even when and if a withdrawal agreement is agreed and in place, Brexit will hugely disrupt existing business and export practices, and potentially add further costs and red tape to businesses importing to and exporting from the UK.
"Businesses should explore their options for alternative sources of finance"
As a result, those of us committed to championing and developing Ireland’s SME sector must ensure that more businesses start to look beyond the UK and shift more of their imports and exports to other markets. Equally, given the squeeze such disruption can place on cashflow, businesses shouldn’t hesitate to explore their options when it comes to the benefits of alternative sources of finance.
Doing so will ensure that, no matter what 2020 brings, Irish SMEs are in the best position possible to make a successful start to the new year.
Innovative Irish SMEs are overcoming challenges such as rising costs, increased competition, skills shortages and the Brexit fallout by protecting supply chains.