The key to Ireland’s future success is enhancing equity finance and investment in small firms to encourage future growth. That’s according to The Small Firms Association chairman, AJ Noonan.
Speaking on this Monday, he said, “Irish small firms rely heavily on banks as a source of external finance which makes them vulnerable to changes in the banking sector. As banks comply with more regulations, lending to SMEs will remain restrictive compared to the pre-crisis period. This is a problem and therefore, a greater diversity of funding options are necessary to ensure a constant flow of finance.
The SFA chairman highlighted the fact that equity finance is not widely used by Irish small firms. The European Central Bank’s latest SAFE survey shows only 8% of the SMEs used equity finance as a source of funding.
“Currently in Ireland the demand for equity finance is low, as there is no culture or tradition of using equity finance. Also small firms fear that they will lose control over their business and among small firms there may be a lack of awareness and understanding about this type of financing,” said Mr Noonan.
He said the SFA would propose that the new Local Enterprise Office (LEO) system should be used to inform SMEs and raise awareness of equity financing. Venture Capital, Crowd Funding and Mezzanine Finance offer alternative forms of finance as SMEs business growth impacts on a firm’s propensity to seek alternative sources of funding.
“Rapidly growing SMEs are likely to access a greater diversity of funding sources than slower growing or stagnant firms, because they are able to offer higher returns for the invested capital,” Mr Noonan suggested.
He outlined that credit flow to business can be improved by enhancing tax-based investment schemes, state-backed capital funds and EIB support.