A new survey from non-bank lender Linked Finance shows that despite inflation, rising interest rates and geopolitical events, Irish SME businesses continue to show "remarkable" resilience.
Linked Finance's SME Confidence Index shows that optimism among businesses in the Irish SME sector remains steady in the first quarter of this year, with a reading of 62.95 (scored out of 100), compared to 62.43 in the final quarter of 2023.
The index, based on research conducted by IPSOS B&A, shows that from the first quarter of 2022 to the first quarter of 2024, business optimism levels have fluctuated within a narrow range, rising from 61.1 in Q1 2022 to 62.95 in Q1 2024.
The levels had peaked at 64.13 in the third quarter of 2023.
Linked Finance said this sustained optimism is reflected in improved projections for profitability and job creation.
73% of respondents reported profits the same or better than the previous quarter, a significant increase from 60% in the previous survey. Meanwhile, 76% of companies also expect trading activity in the next quarter to remain the same or improve, though levels have yet to return to their pre-Covid highs.
Employment growth has also seen a positive shift, with fewer companies expecting to cut jobs and more planning to increase headcount compared to last year.
But despite these forward-looking positive indicators, Linked Finance said that current business activity has dipped into negative territory for the first time since the onset of Covid-19 with just 33% of businesses expecting higher activity in the second quarter of this year, down from 35% in 2023 and 38% in 2022.
Linked Finance also noted the weaker trading experience of micro-enterprises (those with one to three employees).
Only 28% of respondents from micro-enterprises expect business activity to increase in the coming quarter, compared to 51% of larger businesses, which have more than ten workers.
This is also reflected in profitability, with only 26% of micro-SMEs experiencing higher operational profit in 2023, compared to 40% of larger SMEs.
Linked Finance recently passed the milestone of lending over €300m since its launch. Companies that have raised funding with Linked Finance include the Rolling Donut, Kokoro Sushi Bento, Murphy's Ice Cream and the Irish Fairy Door Company.
Niall O'Grady, CEO of Linked Finance, said the resilience of Irish SMEs during the recent economic challenges is commendable.
"While optimism remains steady and forward projections are positive, the dip in current business activity highlights the need for continued support and adaptive strategies," Mr O'Grady said.
"From a broader perspective, the majority of Irish SMEs are steady, but there are sectors struggling to recover quickly from the past three years' turbulence, where the Covid-19 pandemic was followed by inflation and interest rate pressures," he said.
"As businesses face additional costs, including the introduction of new sick pay, parents' leave entitlements, and the imminent auto-enrolment system, micro-businesses, often family-run enterprises with 1-3 staff, will need support through this period," he added.
