Government plans €1bn SME boost

Tens of thousands of small businesses could be in line for a €1bn funding boost if the new Government makes good on its intentions.

Having signalled its intent to tackle the country’s persistent mortgage crisis with a range of measures aimed at alleviating the plight of homeowners, a new focus on SME lending looks likely to follow.

The discussion document that formed the basis of negotiations between the Independent Alliance and Fine Gael, and which has been seen by the Irish Examiner, outlines the need to make significant progress on credit availability for the country’s SMEs.

Specifically, the partners have signalled the need to deliver €1bn in additional finance to help businesses and start-ups progress and scale.

The move comes as businesses continue to struggle under the weight of sky-high interest rates being charged by traditional lenders.

The lack of competition in the banking sector has resulted in SMEs paying more for credit than their peers anywhere in the eurozone.

The ECB’s latest statistics show Irish companies face an average interest rate of 5.8% on loans worth less than €250,000.

By comparison, SMEs in France (2.4%) and Austria (2.2%) can access credit at a significantly lower cost.

Analysis by the Irish Examiner earlier this year showed that not only are Irish SMEs paying substantially more than their European counterparts for credit but that the difference between what small Irish businesses pay in comparison to larger companies is also the largest in the eurozone.

Loans worth over €1m carry an interest rate of 2.62% in the Irish market.

This difference of nearly four percentage points between loans worth over €1m and SME loans of less than €250,000 is again more than twice the eurozone average.

Rather than seeking to stimulate competition in such a dysfunctional market, the new government’s main focus looks set to be in developing alternative sources of finance to achieve its “ambitious” €1bn funding goal.

These include new forms of equity financing, peer-to-peer lending, and “mid-size investment rounds”.

The document pledges to examine options to increase credit availability and stimulate competition.

The draft document — the final version of which is due to be published this week as the programme for government — commits to increasing the earned income tax credit from €550 to €1,650 for the self-employed by 2018.

It also promises to “explore” tax-efficient share options and “seek to introduce” a PRSI scheme for the self-employed and a supportive tax regime for entrepreneurs.