Recovery continues as optimism lifts among Irish SME businesses
Business Optimism Index increases to 60.2
Business outlook is strong with 65% of SMEs expecting trading activity to be the same or better in Q1 2023
73% of SMEs cited higher or level profits in Q4 2022, with only 25% reporting lower profits
Services sector shows strong signs of resilience with higher levels of business activity and employment2
Business Optimism Q3
The economy continues to show signs of recovery as optimism amongst businesses in Ireland’s SME sector increased in the final quarter of 2022. According to the latest Linked Finance SME Confidence Index, based on research conducted by Behaviours & Attitudes, business optimism was at 60.2 in Q4 2022 (scored out of 100), up from a level of 59.7 in Q3 2022.
Optimism levels are translating into improved profitability showing a return to pre-covid levels as profitability moved into net positive territory with 73% of businesses stating that profit is the same as or higher than this time last year. The future outlook is also strong with 65% of SMEs expecting trading activity next quarter to be the same or better, compared to just 35% with this view two-years ago during the height of pandemic restrictions.
Inflation continues to be a pinch point for businesses despite falling energy prices, resilient global demand, and easing inflationary momentum. In its latest Quarterly Bulletin, the Central Bank has forecast a fall in inflation to 5% this year and household incomes are expected to improve. While consumer price inflation remains high, it is showing signs of slowing.
Despite positive signals, businesses are looking to try to recoup dipped profits by passing prices on to customers. Over the past two years, Irish SMEs saw reduced profits with 52% of businesses reporting lower profits in 2020 and 28% in 2021. This is on a positive trajectory, as 73% of SMEs cited higher or level profits in 2022, and only 25% saw lower profits.
Responses show that the proportion of businesses looking to increase prices has now surpassed the level of those seeking to maintain prices. 46% of SMEs increased prices in Q4 2022 compared to 30% who raised prices in Q4 2021, indicating that more businesses pass rising input costs to the consumer.
Niall O’Grady, CEO of Linked Finance, said: “Although we are still seeing pockets of the economy that are slower to rebound, overall, the picture is moving in a positive direction with almost three-quarters of Irish SME businesses expecting to trade at higher activity levels in 2023. The recent CSO Labour Force Survey showed a story of sustained employment growth and as an economy there is much to be hopeful for.”
Looking specifically at Dublin-based SMEs, notwithstanding businesses seeing an increase in activity from 56% in Q3 2022 to 63% in Q4 2022, confidence in future outlook has fallen from 63% to 56% There are positive signs for many sectors, in particular the services sector where 73% of businesses expect the same of higher activity in Q1 2023 and the sector has also seen growth in employment with 92% operating at higher or similar levels of employment.
This trend is illustrated in new loan queries and lending patterns as Niall O’Grady notes:.
“The pandemic ushered in a new way of working which has resulted in reduced footfall in city centers, which is impacting business activity. Greater flexibility and a focus on work-life balance is beneficial for everyone, but as remote working takes a stronghold there is a knock-on effect for small businesses and face-to-face services. In the capital, many smaller businesses rely on consumer spending in shops, cafes, and bars, and as a result, they are being forced to pass higher input costs onto the customer”, Niall O’Grady remarked.
Even with this pressure, micro-SMEs are more hesitant to push prices onto the consumer compared to larger SMEs (those with 10+ employees). Only 44% of micro-SMEs increased prices in Q 2022, with price increases are being driven more by Transitional (48%) and Mid/Large businesses (66%).
“The survey shows that micro-SMEs are less likely to push this price pressures onto the consumers, but the question remains, for how long is this possible? As inflation continues to bite and impact on household disposable incomes, these sections of our economy will have a hard decision; keep prices competitive or sustain profitability.
Demand for finance grows
There are positive signs for many sectors, in particular the services sector where 73% of businesses expect the same of higher activity in Q1 2023 and the sector has also seen growth in employment with 92% operating at higher or similar levels of employment.
This trend is illustrated in new loan queries and lending patterns as Niall O’Grady notes: “At Linked Finance we are seeing increased demand for loans in sectors like manufacturing, logistics and professional services. Businesses are looking for financial support to purchase new materials and to re-stock, and while this may indicate that business are needing inflows of cash for operations, it is positive that businesses are investing in themselves and having the activity levels to support borrowing.”
With over €233 million in funding already provided to local Irish businesses and a growing list of happy clients, Linked Finance is primed to continue its growth and presence in the Irish market.
Alternative options for business loans
In 2022 we saw the withdrawal of KBC and Ulster Bank from the Irish market. This resulted in fewer options for business loans for SMEs in a time of rising costs and across the board.
Instead of settling to deal with the remaining pillar lenders who are notoriously known for slow decisions and high rejections business owners are now actively searching for new lenders.
We asked business owners how likely would they consider choosing an alternative lender and nearly half of SMEs surveyed said they will be considering an alternative lender outside the pillar banks in 2023.
Over the last decade, the rise of digital lenders has provided SMEs with new fast, simple options to access finance.
last year Linked Finance funded €45 Million in business loans to Irish SMEs which was a record year for the digital lending platform. As we close out Q1 of 2023 we are already on course for another record year with over €15 Million funded to Irish in first 12 weeks of the year.
To learn more about what Linked Finance finance options click here or call 01 906 0300.