John Perry (Sligo-North Leitrim, Fine Gael)

I welcome the Minister. The motion is simple and to the point, namely, to introduce a loan guarantee scheme for business. Small businesses up and down the country need help. The motion forms part of the Fine Gael plan to help small businesses survive the current economic crisis. Fine Gael is giving Government Deputies one last chance to provide an essential credit lifeline to struggling small businesses.

Small and medium enterprises, SMEs, are the backbone of the Irish economy. A total of 80,000 small firms employ 800,000 people in every city, town and village. They add billions to the national economy. They are largely absent from Government thinking and policy. In round figures the SME sector contributes approximately €500 million in corporation tax, more than €500 million in PRSI, approximately €3 billion in income tax and €4 billion in gross VAT. By any standard the SME sector is important to the national economy. The Government does not consider the consequences when it increases charges and adds duplicated red tape. Mishandling of the economy has destroyed consumer confidence and hit SMEs the hardest. Fine Gael is committed to assisting this important sector as the national economic recovery will not happen without a healthy and thriving domestic SME base.

Ireland's recession has been longer and deeper than that of any other European country. Far from turning a corner, as was claimed at the previous budget, 2010 has been the toughest year yet for Irish business. The challenges facing small business are enormous. Business has declined by between 20% and 40% in turnover. Insolvencies are at a record level. Most enterprises going out of business are typically small businesses, such as micro-businesses that employ one to ten people and small businesses that employ between ten and 49 people. Local jobs have been lost throughout the country. Small businesses have done what they can to survive, so far without any Government assistance.

A loan guarantee scheme is a proven approach to help viable companies get access to credit finance. I have no doubt the Minister will refer to bank recapitalisation and the fact that we will be giving the Bank of Ireland and AIB €3 billion each in the next two years. Unfortunately, that money is not getting through to businesses. Promises of a "wall of cash" were made by the Minister for Finance in September 2009 when trying to sell the NAMA proposal, but it is clear that all Government promises have come to nought. The Government still claims that the existing strategy of NAMA and bank recapitalisation will get credit moving but the real experience of SMEs prove that this has not happened. Viable companies are going under on a daily basis. Approximately 1,132 businesses have closed their doors permanently between January and the end of September, compared to 1,003 during the same period last year.

Recent research from ISME revealed that 42% of companies which applied for funding in the past three months were refused credit. ISME also reported that 83% of firms said banks are making it more difficult for SMEs to access finance. I accept that some may have had unworkable business plans, but it is clear that many small viable businesses are being forced to close due to conditions outside of their control. The small business sector can do its part to bring the country out of the present crisis through the creation of jobs at local level. Traditional local small businesses, whether manufacturing, tourism, retail, wholesale or construction have the potential to create new jobs. Many of those businesses are being held back because of a lack of Government support. They must get as much attention as the smart economy.

In the September 2010 Forfás report, access to finance is identified as one of the single biggest challenges currently facing SMEs. Access to finance and the cost of finance are the most significant issues facing SMEs today. It is a constraint as small businesses attempt to weather the recession and to survive. It hinders them as they prepare for the upturn and invest in management development, productivity improvements and-or innovation. Many small businesses can demonstrate commercial viability yet fail to obtain loans. Even Forfás recommended a loan guarantee scheme because of issues relating to risk management. SMEs find it more difficult than large enterprises to secure working capital loans from financial institutions. There is substantial factual evidence that the representative associations for small business have identified a real and serious need for a credit guarantee system. State agencies such as Forfás have made the same case.

If this Fianna Fáil Government will not listen to the case being made by those bodies, perhaps it will look to international experience. The main finding of a review of SME credit guarantee systems done for the Canadian Government was that other jurisdictions have adapted basic features of their small business support programs to align them with the changing financial institution practices, SME financing needs and available technology. The international experience is very clear. Small businesses in other countries are being aggressively supported by the use of credit support and loan guarantees as well as export promotion and export insurance supports. Experience from other countries such as Chile and Taiwan is clear and decisive. Other governments have acted in the interest of preserving jobs in small businesses. Based on international experience, a targeted SME credit initiative can facilitate access to credit for SMEs. Such an initiative is not a substitute for commercial bank lending nor does it facilitate credit for unviable companies. It would place Irish firms on a more level footing with international competitors, which is not the case currently.

The OECD attributes three main factors to the success of the Chilean system, namely, a strong regulatory and supervisory system, which is now the case in this country. It is something we are only starting to get right. Transparency and fairness are important. For example, the guarantees are allocated to institutions through a sealed bid auction. An intensive publicity and promotional campaign was considered necessary to explain the scheme. Training programmes were provided to commercial banks to inform them about the scheme and its policies.

Last week the Taoiseach performed a U-turn by announcing that the Government has abandoned plans for a credit scheme. In the process he broke the promise made by the Tánaiste, Deputy Coughlan, when she was Minister for Enterprise, Trade and Employment. He also went against numerous commitments made by her successor, the Minister for Enterprise, Trade and Innovation, Deputy Batt O'Keeffe. That was a terrible shock for thousands of Irish businesses which have been starved of credit and are barely surviving. Later there was an indication from Government that it is considering a loan guarantee system for a tiny number of specialist areas where it may not be possible for the businesses concerned to obtain a bank loan and that the State would step in. It is intended that such a system would apply to only 2% to 4% of loans. There is merit in this approach in that the special preferential guarantee terms may be applied to start-up and innovative companies in the emerging industry areas such as green energy, biotechnology, tourism, health care, agrifood and the creative sectors. However, to limit the proposed scheme to a small remit is completely inadequate. Most international schemes allow the guarantee funds to be used for any reasonable business purpose, including working capital. A major focus for international schemes is the protection and retention of existing businesses, which is a real problem. Financial institutions should continue to take all available collateral consistent with their normal practices.

With a broader business focus to the proposed loan guarantee programme, restrictions on use of funds would be necessary. I would not wish to see guarantee funds being used for share purchases, owner payouts, and debt refinancing. Some features of the proposed credit guarantee system include that it would be short term, one round would cover the next three years. The amount of guarantee must be considered. For example, €50 million would lever up to €500 million worth of loans. A multiplier of ten is the experience elsewhere. Risk sharing should be considered. The code of conduct for business lending to SMEs issued by the Financial Regulator under section 117 of the Central Bank Act 1989 and published in February 2009 should be amended to specify the processes banks are required to adopt in facilitating access to the guarantee system, including the Credit Review Office. The Minister should consider the issue of access to cash.

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