Profiling the indebtedness of Irish SMEs

Fergal McCann ()

No 03/EL/14, Economic Letters from Central Bank of Ireland

Abstract: While much is known of the magnitude and performance of SME debt in Ireland, up to this point no measure of SME indebtedness has been available for a representative sample of the population. Survey data on the ratio of Debt to Turnover (DT) for Irish SMEs in 2012 and 2013 are presented here, with the data revealing that one third of SMEs carry no debt, while 84 per cent of SMEs have a DT of less than one third. 7 per cent of SMEs have a DT of greater than one, with a small percentage of rms having debt levels that are orders of magnitude larger than turnover. An analysis of the impact of DT on nancial health indicates that, as DT gets larger, solvency and default risk deteriorate, even at low levels of DT. The impact tapers among rms with the very highest levels of DT - among these heavily indebted rms whose default risk is higher than rms at all other points in the DT distribution, an increased DT does not act to further increase default and solvency risk.

Date: 2014-05
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