Thumbs up for credit guarantee scheme

There was a broadly positive response to the Government’s credit guarantee scheme, which becomes operational from next Wednesday.

Under the terms of the scheme, €150 million will be made available to the SME sector every year for the next three years.

The fund is aimed at businesses that have insufficient collateral and are operating in sectors that banks do not fully understand. The Government expects 5,600 businesses to benefit from the scheme which is expected to create 4,000 jobs over the next three years.

The loans will be channelled through the participating banks — Bank of Ireland, AIB and Ulster Bank. The minimum loan amount is €10,000 and the maximum any one company can receive is €1m.

The Government will provide a guarantee to the lender of 75% of the value of the loan. In return, businesses in receipt of the loan will have to pay the Government a 2% premium on the value of the loan.

The Irish Exporters Association is critical of the scheme. It says the 2% set up arrangement fee is excessive, and would increase the cost of funds by 40% on current term loan rates.

The restriction of the scheme so that loans under guarantee could be no more than 10% of any company’s loan portfolio would make it almost unworkable, it adds.

Director of the Small Firms’ Association, Patricia Callan, welcomed the move. “After four years of lobbying by the SFA, we welcome the delivery of the credit guarantee scheme.

“Access to credit is vital for small business survival and expansion. The credit guarantee scheme should move the risk pendulum of banks to say ‘yes’ to more small businesses and that is most welcome,” she said.

Chief executive of Chambers Ireland Ian Talbot, also welcomed the plan. “This scheme is something that the Chamber Network has been calling for since 2009 and we have consistently pushed for its implementation since its announcement last year.

“The scheme has the potential to help a number of viable small business gain much needed access to credit and will be of particular advantage to high growth SMEs that are categorised as ‘high risk’.

“We urge any business in need of a loan to get down to their bank to explore all funding options,” said Mr Talbot.

Fianna Fáil spokesman on jobs Dara Calleary has conditionally supported the move. “It is a relief that the credit guarantee scheme has finally gone live and I hope it will go some way to addressing the serious lack of credit available to viable small businesses across the country.

“However, it will not be the cure that SMEs need to the credit crisis.

“The Central Bank has found that in the eurozone, only Greece refused more loans to small businesses than Ireland,” he said.