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Access to finance will be key to recovery – Chartered Accountants

Darren McDowell 2A survey of more than 250 Chartered Accountants in practice, industry and the public sector shows that Northern Ireland is coming out of recession, but the pace of recovery could be hampered by the lack of available finance.

The survey findings from Chartered Accountants Ulster Society were launched today (Wednesday 26th February) at the organisation’s Funding for Recovery 2014 Conference in Belfast, sponsored by Danske Bank. InterTradeIreland is also supporting the Conference which examines the funding landscape in Northern Ireland. The survey was formulated and analysed by economist Maureen O’Reilly.

73% of Chartered Accountants surveyed say that Northern Ireland is coming out of recession, while 24% feel that the region is still in recession and only 3% feel that the recession is over.

This is a marked improvement from the Chartered Accountants Ulster Society survey in Spring 2013 when only 17% of the organisation’s members said Northern Ireland was coming out of recession.

The Survey shows an improving outlook for Northern Ireland businesses, with 38% of those surveyed viewing prospects as good (up from 6% last year) and 17% viewing prospects as poor (down from 56% last year).

Darren McDowell, Chairman of Chartered Accountants Ulster Society which represents over 3,700 Chartered Accountants in Northern Ireland, said: “This survey shows that Northern Ireland’s economic recovery is underway. Our members feel that the longest recession in living memory is coming towards an end and there is much greater optimism around business conditions compared to this time last year.

“This is very welcome news considering the very challenging business environment over the last few years; however we must work to keep this recovery going. Local businesses are calling for greater access to finance to encourage growth and our members feel that viable expansion plans are being put on hold due to businesses not being able to access funding.

“There is a need for banks, alternative funders, business advisers such as Chartered Accountants and the business community in general to work together to address the funding challenge to ensure that we nurture a real recovery.”

Two thirds of Chartered Accountants feel that the demand for business finance is increasing and the majority (76%) believe that the supply of finance is unchanged or decreasing since last year. 78% of those surveyed believe that viable investment plans are being put on hold by local businesses because of a perceived lack of finance. Part of the reason for this is an over-reliance on traditional funding sources such as overdrafts and loans, with 64% believing that Northern Ireland businesses are too dependent on traditional debt funding.

The top reasons given for difficulty in accessing business finance are a lower appetite to lend from banks; a lack of alternative funding options outside of banks; businesses are less able to provide sufficient security; and the property debt which businesses are servicing.

Chartered Accountants also highlight that the information requirements to businesses from potential funders have increased, while the contract terms considered by funders have shortened in the last year.

The survey shows that traditional funding sources such as loans, asset finance, overdrafts and invoice finance are considered to be the most important for local businesses. Asset finance and invoice financing are highlighted as being increasingly considered by local businesses. Of the less traditional sources of finance, external equity (such as venture capital and angel investment) and mezzanine funding are considered the most important in encouraging business growth.

Darren McDowell, Chairman of Chartered Accountants Ulster Society, said: “The survey suggests that the focus when looking for new finance is still on the traditional, bank lead sources. Businesses are looking for asset finance rather than equity finance in the first instance as they are concerned about giving away equity in their business, but we expect that more and more people will be considering these alternative forms of finance going forward.”

Kevin Kingston, Deputy CEO and Managing Director Business & Corporate Banking at Danske Bank, sponsors of the Funding for Recovery 2014 Conference said:

“One of the key drivers of economic growth in Northern Ireland in 2014 will be confidence. We therefore welcome the results of this survey, which reflect what we are seeing at Danske Bank – more confidence in the business marketplace and increased demand for finance from businesses looking to invest and grow.

“In 2013, Danske Bank business customers drew down new cash facilities of over £450m, representing an increase of over 50% on 2012. We are certainly encouraged by the results of this survey and are looking forward to supporting customers, both existing and new, in realising their ambitions for growth in 2014.“

Key findings in the survey include:

  • 73% feel that Northern Ireland is coming out of recession
  • 38% feel that NI’s economic prospects in the year ahead are good; 17% feel that prospects are poor
  • 66% feel that the need for business finance has increased since last year
  • 78% feel that viable investment plans are being put on hold due to a perceived lack of finance
  • 64% feel that NI businesses have an over-reliance on ‘traditional’ funding sources (overdraft/ loan)
  • 54% feel that the total cost of borrowing (cost of funds plus base rate) will rise in the coming year. Only 1% feel it will reduce.