Business optimism back to pre-pandemic levels – Linked Finance SME Confidence Index
Optimism amongst businesses in Ireland’s SME sector has made a strong recovery to pre-pandemic levels, according to a new survey by Linked Finance, Ireland’s leading peer-to-peer (P2P) digital lending platform. The inaugural Linked Finance SME Confidence Index, based on research conducted by Behaviours & Attitudes, was at 65.6 in Q2 (scored out of 100), surging from a level of 48.7 a year ago, and above the pre-pandemic level of 65.2 in Q4 2019.
This optimism is translating into improved profitability, with 65% of respondents reporting profits the same or better than a year ago, compared to 30% in Q2 2020. The future outlook is also stronger, with 76% of SMEs expecting trading activity next quarter to be the same or better, compared to just 46% with this view a year ago. Job creation expectations have also moved into net positive territory, improving from last year when 33% of companies expected to cut jobs and just 3% expected to increase headcount.
Despite the pain experienced through the pandemic, two-thirds of businesses (66%) said they were satisfied with the Government’s efforts to help small businesses cope with the impact of Covid 19, with 26% of companies saying they were very satisfied and only 12% indicating any dissatisfaction.
This suggests that the €31bn+ in expenditure to support the economy – through measures like the Pandemic Unemployment Payment (PUP) and the Covid-19 Credit Guarantee Scheme has been a success, notwithstanding the fact that it is clear that some sectors – particularly travel, hospitality, and live events – still face severe challenges.
There are also signs of growing price inflation, with 23% of companies expecting to charge higher prices in future, up from 6% a year ago. Inflationary pressures were particularly notable in larger SMEs (those with 10+ employees) where 44% expect their prices to increase, and also businesses in the retail and wholesale sector where 57% expect to increase prices. The CSO’s consumer price index showed inflation up 2.2% year on year in July versus a 0.4% decline the same time a year ago.
The fly in the ointment is the weaker trading experience of micro-enterprises (those with 1-3 employees) where 45% of respondents experienced lower trading performance than a year ago, albeit this is down significantly from the 73% in this position a year ago. Firms focused on the indigenous economy are also proving slower to recover compared to those with exports, possibly reflecting the relatively slower opening up of the Irish economy relative to our major trading partners.
The overall positive indicators from the survey tally with Linked Finance’s own loan trends, with the company on track for a strong year of lending after hitting a record monthly high of €5.5m in loans for July. Year to date Linked Finance has issued over €21.6m in loans, compared to €19.9m for the whole of 2020, with strong growth in lending across all sectors, in particular among those reopening their operations following the easing of Covid restrictions, such as retail (+39%), construction (+62%) and transport & logistics (+67%).
Niall O’Grady, CEO of Linked Finance, said: “It is very encouraging that Irish SMEs are recovering from the huge challenges they have faced through the pandemic. Not only has business optimism rebounded to pre-pandemic levels, but the future outlook is for this trend to strengthen. We are, however, still seeing pockets of the economy that are slower to rebound, and it’s clear that the pace of recovery is lagging for domestic market focussed micro-businesses.”
“The inflationary trend is another sign of the economy heating up, although now more than ever businesses need to be careful to maintain competitiveness, particularly where reliant on export markets. Businesses are giving the Government a thumbs up for the Covid supports received, even if it’s clear that sectors like travel, hospitality and live entertainment still bear a heavy burden due to uncertainty regarding their markets.
“The new Linked Finance SME Confidence Index will provide a quarterly barometer of sentiment in this all-important sector that is the engine room of the economy, accounting for over 1m jobs. In January we became the first non-bank lender to be approved under the government Covid-19 credit guarantee scheme, and we are committed to continuing to help small businesses get back on their feet.”
Since its establishment in 2013 Linked Finance has grown rapidly to deliver over €164m to over 2,900 ambitious local businesses in every county in the country. Companies that have availed of lending through Linked Finance include: Skingredients, Tara Slevin, The Agile Executive, and Schoolbooks.ie.