Ciarán Lynch (Cork South Central, Labour)
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Question 7: To ask the Minister for Finance the discussions he has had with the Department of Enterprise, Trade and Innovation in respect of the introduction of a small and medium enterprise loan guarantee scheme; if he has made provision for expenditure on any such scheme for 2010, or if he intends to make such a provision for 2011; and if he will make a statement on the matter. [34027/10]

Jan O'Sullivan (Limerick East, Labour)
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Question 23: To ask the Minister for Finance if he will make a statement on the current small and medium enterprise lending environment; if he is considering any proposals which would ameliorate this lending environment; if he has discussed with the Department of Enterprise, Trade and Innovation, the possibility of implementing an SME working capital loan guarantee scheme; the level of funding that is to be allocated to any such scheme for 2010 and 2011; and if he will make a statement on the matter. [34035/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I propose to take Questions Nos. 7 and 23 together.

The Department of Enterprise, Trade and Innovation and Forfás have carried out a detailed examination of loan guarantee schemes and my Department has engaged with them. There are a number of difficulties with the design of a loan guarantee scheme including, how it fits in with the other Government initiatives to support small and medium-sized enterprises, how to ensure that the loans covered would be additional to lending which would otherwise take place in any event and the additional costs and exposures to financial institutions of such a scheme. The Credit Review Office has been set up to ensure that the banks are not refusing credit to viable businesses and it would not make sense to guarantee loans to unviable businesses. I believe Deputy O'Donnell suggested during the NAMA debate that we should have some form of direction regarding banks and lending, and that was the genesis of the Credit Review Office idea. In addition, the SME lending plans of AIB and Bank of Ireland mean that credit should be available as required by small and medium-sized enterprises. Officials from both Departments will work with John Trethowan of the Credit Review Office on options to enhance support for small and medium-sized enterprises. There is no provision in the this year's budget for such a scheme and the 2011 budget, as we know, will be announced in December.

Joan Burton (Dublin West, Labour)
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We are trying to give people signs of hope that we can reflate the economy and get some activity going. I have been putting this proposal to the Minister for the past 18 months. There are successful SME loan guarantee schemes working, for example, in the UK, Japan and Hong Kong. As I have mentioned before, I envisage a co-guarantee risk-sharing scheme where the banks make the lending decision, consistent with the Credit Review Office, but the Government steps in to guarantee 50% to 75% of the loan. This means that the bank's exposure is somewhat less. It is a loan guarantee scheme on which, as with the one the Minister discussed earlier, fees are payable. If the Minister believes the banks are lending in any meaningful way to small and medium-sized businesses at the moment, he is not living in the same economy and talking to the same business businesspeople as I am. The work of Mr. Trethowan's group confirms that.

The Minister told us he was preparing a four-year budget plan to be published in November. This is a standard way to kick start loan capacity for small and medium-sized businesses. It is one of approximately ten different plans the Labour Party has proposed. Will the Minister give it favourable consideration?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I will certainly give it consideration and draw it to the attention of the Credit Reviewer, who is engaged in discussions with the Department of Enterprise, Trade and Innovation on this matter. Both AIB and Bank of Ireland submitted lending plans, outlining how they would lend not less than €3 billion per year in new or increased credit facilities both this year and next year. These plans were reviewed by Mr. Trethowan and my Department and were found to be credible. We receive monthly progress reports from the two banks which allow us to ensure they deliver on the strong commitments given in the plans to support viable businesses in all sectors of the economy and in every area of the country. Mr. Trethowan has reported to the Department that both AIB and Bank of Ireland are open for business and that borrowers should use the Credit Review Office if they find this is not the case.

The Credit Review Office started operations in April. The business model is designed to determine whether declined borrowers can demonstrate that their business or farm is viable as a going concern and has cash-generation capability to service the requested credit. An ancillary benefit of the office's establishment has been the setting up of a defined internal appeals system in the NAMA-participating banks. A significant number of refusals are now being overturned. Significant interest has been shown in the office in terms of inquiries, both on the web and by telephone, but this has not been translated into requests for reviews of loan applications where there is a relatively small number. I accept some customers may feel inhibited about making an appeal against an institution.

Kieran O'Donnell (Limerick East, Fine Gael)
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Does the Minister agree that AIB and Bank of Ireland appear to be more concerned with rebuilding their balance sheets than providing credit to the small and medium-sized enterprise, SME, sector? We hear of countless businesses having their overdraft and working capital facilities reduced. There is an old saying in business, "Cash is king". A profitable business without cash flow will easily go to the wall. A partial loan guarantee scheme will give confidence in business lending. Fine Gael's original proposal of a national recovery bank was based on the fact that the commercial banks had become risk averse. Prior to this, business lending was also very much based on security being provided by property. Does the Minister agree there is a need for a scheme to get credit flowing to the SME sector? NAMA and bank recapitalisations to date have not succeeded in getting credit flowing again. Does the Minister agree there is a need for a partial loan guarantee scheme and a national recovery bank?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I have heard anecdotally that there is some evidence of a difference between AIB and Bank of Ireland in their treatment of business customers. This morning's announcement will help enormously in that regard because it will bring capital certainty to AIB's position. The Government decided the investment in Allied Irish Banks would take the form of cash rather than relying on the accounting device of converting preference shares into ordinary shares.

Kieran O'Donnell (Limerick East, Fine Gael)
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What was the logic behind that decision?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It was to put the bank back into funds. This comes back to Deputy O'Donnell's point about a national recovery bank. Cash is king and generates the capacity for a bank to lend. Setting up a new bank would mean it would take an extended period to create a realistic presence in the Irish market. That is why the policy of turning around Bank of Ireland, which successfully raised funds on the market on a risk capital basis earlier this year, and Allied Irish Banks, which will be fully capitalised and have market certainty as a result, will enable these two institutions to progress. I am open to examining Deputy Burton's proposal in a constructive way.

Damien English (Meath West, Fine Gael)
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Another point made at the committee in question was that providing professional business advice can also help businesses access credit. As many businesses find it difficult to produce, say, cashflow statements for future years, they need greater assistance from management accountants to prepare business plans before seeking loans from the banks. The State could have a role in providing such assistance, similar to the business health check scheme in the UK. Will the Minister, when in discussion with the Department of Enterprise, Trade and Innovation, see if such a scheme could be introduced in the budget through tax breaks or a voucher scheme?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That has been the experience of the Credit Review Office. In some of its appeal cases, it had to assist in the preparation of such documentation.

Joan Burton (Dublin West, Labour)
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Does the Minister appreciate that businesses need to get their customers to pay them more promptly to generate more business? The problem is the cash cycle is frozen. The purpose of the Labour Party's proposal for an SME loan guarantee scheme is to get the cash cycle flowing again. The work done by Mr. John Trethowan is fine but Allied Irish Banks and Bank of Ireland will still want to conserve capital to get away from State ownership and dependence as quickly as possible. To achieve this, their credit lines to the SME sector will remain frozen, meaning overdraft and credit facilities will still be curtailed. I spoke to a person last week who was offered an overdraft-----

Brendan Howlin (Wexford, Labour)
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Could the Deputy be brief?

Joan Burton (Dublin West, Labour)
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-----but the interest rate and facilitation fees were colossal. It was another way of saying "No". I cannot stress how important it is to unfreeze the credit cycle.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am well aware the pattern of repayment and credit has extended during this recession. I would not say it has frozen in the payment of debtor-creditor balances in the general economy.

Joan Burton (Dublin West, Labour)
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It is very tough all the same.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I accept there has been a big extension in the times of payment. There are different approaches to this problem, such as the loan guarantee schemes as proposed by Deputy Burton. Another approach is factoring guarantees. I will draw all these proposals to the Government's attention.

Joan Burton (Dublin West, Labour)
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Is the Minister examining a factoring guarantee scheme?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I have been rather busy recently but I will be in contact with the Credit Review Office about this matter.