SME repayment difficulty

In this Note, we compute a SME repayment difficulty outcome for 2023 and show the resilience of Irish Small and Medium Enterprises in the face of increasing cost pressures. We model the determinants of SME payment difficulty in Ireland using detailed firm-level survey data. We find that firms’ access to internal sources of finance is the most important contributor in reducing the likelihood of missed payments. Among firms with existing financial debts, leverage, liquidity, and interest burden are key determinants of repayment difficulty. A one standard deviation increase in the leverage ratio, the interest expense to turnover ratio and tax to turnover ratio from their mean values raises the probability of SME financial distress by 6.2, 4.6, and 3.3 per cent (respectively). In contrast, a one unit increase in the cash to total assets ratio from its mean value decreases the probability of SME financial distress by 4.5 per cent. Our results suggest that higher interest rates are unlikely to be the primary driver of missed payment propensity for most firms. Overall, Irish SMEs have demonstrated increasing resilience post-COVID-19 with factors such as attitude to debt, leverage, liquidity and interest burden playing a key role in determining resilience.