Loan plan for businesses a high-risk strategy

YOU recently (Business, June 21) reported a government plan to conjure up loans totalling €400 million each year for the next three years.

The plan hopes to help new businesses who lack collateral for a loan. That seems like escalating a high-risk strategy.

Half of all start-ups fail within their first 12 months, mainly because of cash flow difficulties. Three out of every five start-ups survive for only three years.

Our banks do not seem to be doing what banks are meant to do. The Government says it will partially cover any losses if the new businesses default on their repayments.

Over 13,000 new businesses started up in 2009. Under the new scheme, 10,000 new firms could borrow an average of €40,000 each. That might buy a small lorry or a van or two. It would be a modest annual wage for one person. The new scheme is forecast to cost the state €12 million per year. That may contravene the competition rules of the Single European Market, but Brussels is remarkably silent about that lately.

After all the bailouts, are we still spoon-feeding the banks? Will they be on a drip feed of state aid forever? Capitalism has been turned on its head. That, by definition, is half a revolution.

Michael Mernagh

Carrigaline

Co Cork