Credit guarantee scheme

€450 million in new lending to exporting SMEs is predicted under the credit guarantee scheme but businesses question its effectiveness.

Exporters’ representatives have criticised the terms of the Government’s credit guarantee scheme but ministers expect that it will create 4,000 jobs over the next three years.  The €450 million scheme opened on 24 October.

With a 75 per cent state guarantee to banks against losses on qualifying loans, it aims to tackle two market failures i.e. where businesses have insufficient collateral or are operating in sectors with which the banks are not familiar.  Each annual €150 million tranche of lending will cost €6.38 million but a net gain of over €25 million to the exchequer is expected, after the expected increase in tax receipts and decrease in social welfare payments.

Applications should be made to the participating banks: The Bank of Ireland, Allied Irish Bank and Ulster Bank.  Other lenders may join if they pass the accreditation process.  The minimum permissible loan value will be €10,000 and the maximum will be €1 million.

“Access to credit remains a key issue for many businesses, and if we are to see the growth and jobs we need, government must to act to fill gaps where specific market failures exist,” Minister for Jobs, Enterprise and Innovation Richard Bruton stated.

Despite calling for the scheme, the Irish Exporters Association was critical of the announced version, pointing to set-up costs and restrictions on the level of loans covered by the guarantee.  Chief Executive John Whelan lamented “a very disappointing response to one of the most pressing issues for export industry” which had “very little chance of assisting the creation of the targeted 1,300 jobs.”

An annual survey of exporters, published in August, reported that 28 per cent of exporters were experiencing difficulties in obtaining trade finance for their business.  “The simple fact of the matter is that many exporting firms are still unable to get adequate finance to sustain their existing business and to grow their export markets,” Whelan said.  The scheme’s scale and timing had been approved in April this year but the association contended that its success depended on competitive interest rates.  Interest rates, fees and charges will be determined by the lender based on its own assessment of the risks.

An annual portfolio claim limit of 10 per cent will be set for the aggregate value of loans for each lender.  Once a lender’s default claims have reached that limit, any further losses must be borne by the lender and will not be eligible to be reclaimed from the State.

In line with state aid guidelines, recipient businesses will be required to pay the State an annual premium of 2 per cent on the outstanding balance of the loan, assessed and collected annually or quarterly in advance.  The scheme is managed and operated by Capita Asset Services, based in Maynooth.

The scheme does not cover primary production in agriculture, horticulture and fisheries (due to state aid rules and a lesser risk of market failure) but the food and drinks sectors will be eligible.  Re-financing of existing debts, overdrafts and property-related activities will also be excluded.

A separate micro-finance fund (lending up to €40 million over five years) opened to businesses on 1 October and provides loans of up to €25,000 for viable businesses with less than 10 employees who have had difficulty in accessing credit from the banking sector.