Research carried out by a UCC economist has found that a lack of confidence among small firms in the banking system is affecting the amount of credit flowing to the sector.
Emily Whelton said the extent to which a lack of lending is hitting small businesses is being understated by official statistics. She quoted the Mazars report, which found that 24% of small or medium-sized businesses (SMEs) were denied access to credit by banks.
Ms Whelton said, however, that this figure rises to 59% for short-term finance and 53% for long-term finance when what she calls 'implicit credit rationing' is taken into account. This is when firms have such a lack of confidence in the banking system that they do not even apply for loans.
Her study found that more than 70% of small firms surveyed have felt discouraged in some way from applying for credit since October 2008. More than half of these said they needed credit to survive or expand their business.
The economist said the funding injected into the banks through the NAMA process would probably not trickle down to small businesses, and what was needed was a return of confidence.
'Firms must believe that credit is available and that banks are making a conscious effort to lend. Perception is reality,' she said.
