Business activity in the Irish SME sector has edged into negative territory for the first time since 2020, according to a new business confidence survey by lender Linked Finance. Post-pandemic trade was strongest for SMEs in 2022, and over the last three years, that has remained in positive territory, until now. While that sentiment reflects the overall general picture, sectors within the SME sector are still performing well, particularly larger businesses.

One-in-three SMEs reported that business results were lower year-on-year, an increase of 2% on the same period last year. While the increase is not overly significant, it does show that several factors - both externally and domestically - are affecting the performance of SMEs.

Business optimism amongst all Irish-based SMEs surveyed was 67% six months ago, but that has now dropped to 61%. Exporter optimism in Q1 2025, which had increased due to a bounce in orders rushed to warehouses ahead of threatened tariffs in the US, has dissipated somewhat. The retail and wholesale trade is the one area within the broader SME sector that saw increased optimism levels in the second quarter, with positive sentiment up 5% year-on-year.

Business activity and outlook

While just over two-in-three businesses reported that their activity is the same, or higher, compared to the same period 12 months ago, it is the first time in five years that the tracker tipped into negative territory in terms of the gap between positive and negative (-3%). Given the uncertainty in the markets and geopolitics in Q2, this still shows a good degree of resilience.

While large businesses are holding up well, medium-sized SMEs (4-9 people) have seen the biggest change year-on-year, with almost a quarter reporting that business activity is down compared to the same period last year.

Activity levels at indigenous businesses are almost flat year-on-year, while the number of exporters who experienced a drop in trade between Q1 and Q2 2025 jumped by 10% - mainly the result of increased activities in Q1 as exports were boosted ahead of incoming tariffs.

Dublin-based SMEs performing better

Dublin-based SME businesses are performing much better than those in the regions in terms of business activity. Dublin-based firms noted an improvement in activity - with 76% reporting trade was the same or higher - but for those based outside the capital, only 62% reported this was the case.

The sentiment for Q3 2025 is now in slightly negative territory (-3% gap on positive over negative), with mid-sized businesses seeing the biggest impact here. Only one-in-five expect Q3 2025 to bring a boost in business, compared to almost one-in-two when surveyed this time 12 months ago. On the positive side, large SMEs remain optimistic for Q3, with 46% expecting an upturn in business.

Linked Finance CEO Niall O'Grady said that it was understandable that some businesses are adopting a cautious mode, concerned about tariffs or revising their forecasts:

"We live in uncertain times, and it is not surprising that SMEs in Ireland are tempering their outlook given constant reports, and now confirmation, about tariffs. This is combined with continuing conflict in both Europe and the Middle East.

"However, there are several positive takeaways from the data, particularly that large companies remain bullish for the next quarter, which is important as they employ the most people here. In addition, micro businesses are seeing a slight improvement while the retail and wholesale trade is showing some green shoots."

The quarterly Business Confidence survey is conducted by Ipsos B&A on behalf of Linked Finance, which is Ireland's leading SME peer-to-peer lender. In operation since 2013, Linked Finance has lent more €350 million to the Irish SME sector, and recently raised €50 million in wholesale funding that is available to its SME borrowers. The most recent survey was conducted several days before the EU and the United States agreed a deal on tariffs.

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