Nearly a third of SMBs rely on credit cards every day to smooth cash flow, and another quarter use bank overdrafts to make ends meet.
ata, compiled by accounting bank Bibby of over 200 small businesses, found that 30 percent used their credit cards for cash flow purposes or to fund growth, while another 26 percent used bank overdrafts.
While most companies prefer corporate credit, at 38 percent this is still less than the more than half who use short-term or revolving credit to fund their operations.
The information corroborates central bank data, which suggests firms have significantly increased their use of short-term borrowing since government Covid support was scrapped earlier this year.
Statistics from the central bank show that companies have more than doubled their use of credit cards and bank overdrafts in the last year, taking the amount of loans to more than 5.4 billion euros, one of the highest levels in almost seven years.
“These numbers are worrying because these options require a company to incur even more debt at a time when it doesn’t need it,” said Mark O’Rourke, chief executive of Bibby Financial Services Ireland.
“Irish companies are once again bracing themselves for further economic volatility thanks to a range of domestic and international hurdles, most of which are beyond their control.”
Outstanding loans with maturities under a year totaled 6.9 billion euros in March 2020 but fell quickly as the state introduced subsidy programs to help companies survive the pandemic.
But when the Employment Wage Subsidy Scheme (EWSS) expired this year, companies began using their short-term debt options, with a sharp spike in April when the scheme ended.
Since then, it has slowly risen as companies have gradually increased borrowing overall.
Net lending to non-financial corporations remained positive in August 2022, amounting to 295 million euros in the month, according to the latest Central Bank Money and Banking Statistics.
On an annual basis, NFC loan drawdowns exceeded repayments by nearly €2.4 billion. This was the largest annual increase since mid-2009, resulting in a growth rate of 7.8 percent. About three-quarters of the net increase came from short-term borrowing less than a year old, indicating it’s mostly credit card and overdraft debt.
Bibby gives his sample of SMEs almost unanimous optimism about their business prospects and opportunities over the next 12 months, with more than half expecting to grow their sales but many still grappling with post-Covid challenges.
According to the study, tracking unpaid bills is the top funding concern for nearly a third of small businesses, followed by managing bad debt risk for 27 percent of businesses. Effectively managing day-to-day cash flow was identified as a challenge by more than a quarter of respondents.
Energy bills and commodity price inflation are the two biggest concerns for businesses over the next year, Bibby said.
https://www.independent.ie/business/irish/half-of-small-firms-use-credit-cards-or-overdrafts-to-meet-cash-flow-needs-bibby-survey-shows-42083626.html Half of small businesses use credit cards or bank overdrafts to meet their liquidity needs, a Bibby survey shows