Strategic bank makes €800m available for SME

Small and medium businesses can begin accessing a €800m loan scheme from next month, after a multi-funded strategic bank was launched by the Government.

European and German finance chiefs agreed the final touches to the Government’s new Strategic Banking Corporation of Ireland yesterday and said it would allow for longer term loans.

Business groups welcomed the measure, which will be backed by €150m from German state bank KFW, €400m from the European Investment Bank, and €240 from state funds.

Finance Minister Michael Noonan said the bank would help recovering sectors and small firms in Ireland and would be “part of the economic landscape here for decades to come”.

He defended the circuitous route by which businesses will be able to draw down the funds, saying the interest terms were very low and loan periods longer than normal.

Launching the bank, German finance minister Wolfgang Schauble praised Ireland’s recovery, saying: “We all are jealous of our Irish colleagues who have been so successful, and once again I only can congratulate.”

The first rounds of lending from the SBCI will begin at the end of this year and will only be accessible to small and medium businesses.

The Coalition had promised to set up the bank in its Programme for Government.

The funds will initially be available to businesses through the main banks and could see amounts drawn down with interest rates of less than 1%, officials said.

EIB president Werner Hoyer said the scheme could be a model for other European countries.

The small and medium enterprises association, ISME, welcomed the bank but said its lending must be monitored to ensure that Bank of Ireland and AIB gave it to the right businesses.

CEO Mark Fielding added: “An oversight body must monitor the situation strictly and banks must be compelled to report to this body regularly. The banks cannot be allowed to revert to past form when they used the cheaper funds in the nineties to refinance larger businesses.”

The bank would ensure that SMEs can access funding on more favourable terms, said the Dublin Chamber of Commerce.

However, Fianna Fáil asked why the scheme was not actually a bank and did not have a banking licence.

A decision to distribute the funds through the main banks could backfire, said finance spokesman Michael McGrath: “The fundamental flaw in this is that the credit decision will remain in the hands of the existing banks.

“These banks have hoarded capital over the last six years and it is likely that they will continue to take a very risk averse approach to lending. This means that many firms with viable business propositions will be denied the capital they need to invest and grow their business.”