The small business column: Nick Ashmore, chief executive of the Strategic Banking Corporation of Ireland

For this week’s Small Business Column, Kehlan talks with Nick Ashmore, chief executive of the Strategic Banking Corporation of Ireland; the State’s new so-called SME bank.

Give us an overview of the Strategic Banking Corporation of Ireland?

Well, the corporation is a new financial institution set up to bring low-cost, long-term finance to the SME market. We now have loans available in the market through AIB and Bank of Ireland.

We have a total finance pool of €800m, €400m of which has been allocated to operate through the pillar banks. Non-banking members, like leasing firms, will be a part of the financial allocations.

SMEs can borrow up to €5m, so there is no lower limit from our point of view. Bank of Ireland has a lower limit of €25,000, while AIB has no lower limit on loans.

The issue with getting finance to SMEs seems to lie with the pillar banks. How will this operate differently if it is still running through them?

That’s very much understandable. The SME lending market has gone through a difficult and traumatic time over the past number of years.

However, AIB and Bank of Ireland offer us the ability to reach out to the largest market possible with our offering. So, for us as a new entity, it would be very difficult; the vast majority of SMEs in Ireland have their bank accounts with one of those two banks.

Red tape was also a big sticking point for small businesses. Will that change?

No. You have to realise we’re a government-backed organisation so there is an element of form-filling on extra forms. However, the nature of lending is changing as a result of regulation.

There is more and more emphasis to lending on the fundamentals of business and that does require more information to be provided by businesses.

This is opposite to what happened in the past, which was effectively evaluating the assets a person had, like a home, and summing up a loan application.

Because you’re a government organisation does it mean sorting issues and problems will take longer?

The time taken is a representation of the constraints in which we have to work under state aid regulations and the constraints in which our funders apply to what we can do.

However, the corporation is a far more flexible and potentially fast-moving platform than we’ve seen in the Irish market in this kind of space.

Previous programmes have been more specific and quite rigid in how they have been set up.

A number of farming organisations have raised concerns about the corporation and agri-loans and how you deal with them.

We’ve had to go through a separate state- aid treatment for us to be able to make loans into the agri-sector market.

That has pushed us to focus on investing in the productive capacity of those farms and lending to farmers for new machinery and equipment for the likes of the expanding dairy sector.

We are steering clear of the acquisition of land, partly because we are precluded by state aid to do so, but it is also not in anyone’s interest to support property prices and make the sector uncompetitive.

Have you had to learn, yourselves, what makes an SME work?

We are always on a learning curve and I’m sure we’ll still be learning in a few years’ time. It’s such a multifaceted and widespread sector, but it is very important we learn and understand what problems SMEs face.

Your new board was announced last week with representatives from the SFA, ISME and Chambers Ireland on it. Is that a measure to keep you on the straight and narrow?

Absolutely, but also to bring a wide range of experience and knowledge to the table. This will allow us to access a huge amount of understanding from the sector.

Richard Pelly is also formerly of the European Investment Fund, and this connection will be critical to us as we move forward and develop more structures and funds to offer the market here.

So this shouldn’t be expected to be a quick fix to the problems SMEs are having with finance?

No. It also sits with an effort to encourage SMEs to think long-term in their business, about their funding, about their capital structures and not to rely on short-term overdrafts.

A minimum of two years is what some operators are offering SMEs. However, our loans can be brought out to 10 years if that is the requirement. We’re thinking long-term with this as well.

Don’t forget that this is just the first €400m of €800m of funds that we have to work with right now.

We do expect that number to be added to in future. Other countries had similar institutions like us through rough a economic climate and it provided a great platform to provide to SMEs.

Are there any major differences, outside of rates and loan terms, between the pillar banks and the corporation?

One of the main objectives is to drive competition. It’s not just about the offerings through pillar banks.

It’s about what we can bring to bear through small and non-bank groups in the market. That is a critical part of what we’re looking to do.

The main banks have been accused of cherry picking businesses and sectors to suit them. Can we see a broader base of markets with the Strategic Banking Corporation of Ireland?

What we want to do, once we’ve brought the longer-term lower-cost loans for investment and working capital, is look at market-failure rates or what’s called points of dysfunction.

So, if for example, a certain type of company looking at a certain type of borrowing can’t typically get a loan but its competitors can in other countries, then we may be able to help.

How do you hope the corporation changes the financial landscape over the next few years?

I hope it encourages SMEs to invest in their businesses and start to grow and add more jobs.

I hope that we drive competition, introduce new participants into the market and they, in turn, add new lending and credit into the SME sector.

For more information go to www.sbci.gov.ie