State backs €150m loan fund for businesses

Hundreds of struggling small and medium-sized businesses are set to benefit from an annual €150m state-backed loan scheme.

The net cost of running the scheme to support three years of lending will amount to over €19m.

The scheme, committed to in the Programme for Government and launched by Jobs Minister Richard Bruton, is aimed at lending to businesses denied funds by banks or where companies have insufficient capital to access loans.

The State will provide up to a 75% guarantee to banks against potential losses on qualifying loans, which can be drawn down by firms which show potential for growth and job creation.

Legislation for the scheme is expected to come before the Houses of the Oireachtas for debate in the coming weeks and, if passed, enacted before the summer.

Publishing the Credit Guarantee Bill, Mr Bruton said: “The credit guarantee scheme will benefit innovative, job-creating businesses who face obstacles accessing credit because they do not have enough collateral, or because they operate in sectors which the banks are not familiar with. These are the businesses we need to stimulate our jobs recovery, and this Government is determined to make that process easier where we can.”

Lenders will be decided for the scheme, which will be reviewed after a year by the minister. Borrowers will apply to the lender, which will allocate the State-backed funds according to the terms of the scheme.

However, borrowers must also pay a 2% interest charge on loans borrowed to the minister above and beyond interest paid to a financial institution. The 2% levy is expected to return €18.6m over the three-year scheme.

The cost of running the loan guarantee deal will amount to €19.5m over the three years, the bill says. This includes €4m which will mostly go to Maynooth firm Capita Asset Services to administer the scheme over the three years. The company will monitor the lenders.

The overall cost of defaults on loans backed by the State could also amount to over €33m, the bill states.

Mr Bruton’s department said the overall costs of the initiative will be reduced through increased tax receipts and decreased social welfare payments, and that the net gain to the exchequer could be over €25m per €150m of lending.

Mr Bruton said he expected the scheme would benefit over 1,800 companies. Primary producers in agriculture, horticulture, and fisheries are excluded from the scheme but the food and drinks sectors will be eligible. Refinancing existing company debts and property related activities will also be excluded.

Firms that employ less than 250 staff and which have an annual turnover not exceeding €50m can apply for loans.