SMEs At Risk Over Property Loans
New research from the Central Bank shows that SMEs that took out loans to purchase property during the boom years are almost twice as likely to default when compared with those businesses that don't have property loans.
The Central Bank research is the latest publication in its 'Economic Letter Series', which calculates that at least one fifth of SMEs have direct exposure to property debt.
At least 10% of businesses with bank debt also have exposure to property investment at the same bank, according to the publication – this figure rising to 16% when buy-to-let mortgages are included.
According to the Central Bank, SMEs with property-related borrowings have a loan default rate of 43%, compared with 23% for those without property exposure.
Borrowing was highest in the business and administration services, hotels and restaurants, and the wholesale and retail sectors, where the Central Bank says between 30% and 40% of the outstanding bank loans are accounted for by firms with property exposure.
Firms in the manufacturing and services sectors were least likely to invest in property, while firms involved in agriculture or construction were the most likely to take on property borrowings.
Larger firms were more likely to be involved in property borrowing, with 25% of firms employing more than 50 people having property exposure, as opposed to 17% of micro firms, i.e. businesses employing fewer than ten people. (August 2014)