The €2bn credit-guarantee scheme is likely doomed to fail because banks won't likely lend to those small firms that are most in need of help, small firm business groups have said.
The credit guarantee scheme which plans to offer €2bn in lower-cost loans to businesses is part of the €7.4bn summer stimulus package that the Government says will save thousands of jobs during the Covid-19 economic emergency.
Neil McDonnell, chief executive at Isme, said the scheme will fail because it is not attractive enough to persuade banks to lend to hard-hit firms struggling with debts and there was still a lack of clarity about the real cost of the loans under the scheme.
The Government said the stimulus will back Ireland’s businesses by providing SME loans at zero-interest for the first year.
Isme is still holding out for a credit-guarantee scheme that meets the needs of small firms and looks more like the equivalent UK scheme, the Bounce Back Loans scheme, where it has been hugely successful after a revamp.
The UK scheme is 100% backed by the UK government which compares with the Irish scheme’s 80% guarantee which means that the commercial banks here have to take on 20% of the losses for defaults. Mr McDonnell said that banks here are “gun shy” over lending to Irish small firms.
John Moran, a former secretary-general at the Department of Finance, who heads up the SME Recovery Ireland business group, said the stimulus package was not big enough.
The reduction in the Vat rate to 21% would not deliver the aid to small firms who are struggling with debts built up in the last four months of lockdown and who won’t have the time to trade themselves out of the crisis by tapping the Vat cut, he said.
On the credit-guarantee scheme, Mr Moran said many SMEs were already too weak financially and won’t be able to make the terms of the loans.
Economist Jim Power said that the surprise element of the stimulus package was “the very costly” reduction in the Vat rate and he favoured more targeted measures. The UK and Germany had announced more ambitious stimulus schemes, he said.
However, Fergal O’Brien, director of policy and public affairs at Ibec, said the “comprehensive package” was the “right mix” for businesses. And Brian Keegan, director of public policy at Chartered Accountants Ireland, said the extension of the wage-support scheme and the increased level of the restart grants will give firms confidence.