Debt can come from a variety of places, especially when you are working within the confines of a business and it’s very specific budget. Many times, debt for these institutions is in the form of owed money; this owed money was usually a loan from the bank.
Within the recent years, the prices of these loans, or borrowing costs, have increased. The first three months of 2019 have seen significant growth in this area, despite economist’s predictions that interest rates would be falling within the year.
SME’s, or small-to-medium enterprises, saw these high borrowing costs as a sign that they should proceed with extreme caution when working within the borrowing market. These businesses already pay some of the highest interest rates in the European Union and have made sure to be well educated on the possibilities of economic changes or interest hikes on their finances.
Small-to-medium enterprises are extremely important to have in any market, given that they play a key role in employment. Small enterprises are defined as having less than 50 employees and have an annual turnover or income sheet that is less than €10 million. Medium size enterprises have between 50 and 249 employees, with an annual turnover not exceeding €50 million or the annual balance sheet sheet exceeding €43 million.
With an abundance of these small-to-medium enterprises, employment opportunities are plentiful, as is their contribution to the Irish economy. In general, their sizes allow them to be less dictated by the government and more by the actions of the company’s CEO, founders, owners or managers.
These concentrated powerhouses have the ability to persuade the finances of their company heavily. Despite Ireland’s economy being one of the fastest growing in the European Union, the first few months of 2019 showed that lending to Irish-owned and operated SMEs decreased from €1.5 billion in the previous quarter to €1.1 billion. This €0.4 billion decrease was said to have been heavily impacted by the initial Brexit deadline that was at the end of March.
Additionally, the borrowing costs are continuing to rise. In Q1 2019 the interest on an outstanding SME loan was around 3.51pc, now it is at an ever growing 4.14pc. These rates may continue to get worse, especially if there is a no-deal Brexit.
Overall, small-to-medium businesses have a reason to worry about the future of their borrowing and debts and are making sure to account for all factors in their actions now.