Small business loans initiative severely limited, claims SFA

The Small Firms Association has warned that a new initiative between Local Enterprise Offices and Microfinance Ireland aimed at providing credit to businesses is severely limited by a requirement that has "neutered" the finance fund to date.

MFI yesterday announced a partnership with 31 Local Enterprise Offices that aims to lend €3.8m to 250 businesses and support 500 jobs by the end of the year.

Micro-enterprises seeking credit from the MFI must first have been refused access to credit by a bank before they can be considered for a loan of between €2,000 and €25,000 from the not-for-profit lender, however.

This stipulation, according to SFA chairman, AJ Noonan has neutered the MFI up to now and should be removed.

“We would encourage that it be changed as soon as possible. Today was a good thing but the removal of the refusal-first policy is much more important,” said Mr Noonan.

According to Microfinance Ireland chief executive, Michael Johnson, moves are under way to change the requirement.

“There is currently a review of the policy under way and a strong indication that it is likely to be abolished. We’re confident it will be off the agenda permanently in the near future,” said Mr Johnson who added that rejection from banks leads to very strong demoralisation among business owners.

Consequently, he said, there is virtually no trickle-through of potential borrowers to their service despite a requirement that they be informed of MFI’s services upon being refused finance from the main lenders.

Yesterday’s announcement saw the roll-out of the LEO Microfinance loan which it is hoped will encourage more business owners to avail of the service and to access credit at a lower interest rate.

Eligible businesses will be able to able to access the new loan product at a reduced rate of 7.5% — 1% lower than business-owners who go directly to MFI.

Sole traders, partnerships and limited companies with fewer than 10 employees and an annual turnover of less than €2m are eligible to apply for the scheme.

- For more information visit www.microfinanceireland.ie