Batt O'Keeffe (Cork North West, Fianna Fail)

The Deputy will be aware that work is under way in my Department on the examination of a possible scheme of loan guarantees for the SME sector which could augment lending by banks by addressing particular market failures. This is in line with one of the recommendations in the Mazars review on bank lending to SMEs.

Enterprise Ireland and Forfás carried out examinations of loan guarantee schemes in the UK and in some other countries. Following more detailed examination, Forfás recently submitted a report to my Department, which is being considered. A key issue to be addressed is the role such a scheme might play in improving access to finance, particularly in current circumstances, for viable companies, such as start-ups and technology companies, that do not have bankable substantial assets.

Studies that have been consulted attach considerable importance to the design of such schemes to ensure that they benefit companies and to minimise the cost to the Exchequer. From the company perspective, the key issue concerns additionality, the extent to which a scheme increases the amount of lending to SMEs. To the extent that substitution occurs – companies that would be funded in any event being covered by the scheme – such schemes merely increase the cost of borrowing to the companies concerned. From a cost perspective, the premium charged to the borrower is intended to offset the cost of defaults but in most schemes some level of public subsidy is involved. The design of any scheme is obviously critical. The scheme must have clear objectives and be carefully targeted. The issues are being examined in detail in my Department and on completion of this work I will bring the results before Government.

In addition, the Deputy will be aware that the Government has taken decisive action to get bank credit flowing to viable businesses, which include specific SME funding initiatives by AIB and Bank of Ireland.

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