Damien English (Meath West, Fine Gael) | Oireachtas source

I thank the Deputy for raising the issue of interest costs because I did not get the chance to go into the detail on this yesterday. It is important that when we are having these discussions, SMEs, as well as those who provide assistance to them, such as State agencies and Chartered Accountants Ireland, recognise that this is only one of several interventions that the State is making, using taxpayers' money to help businesses to reopen, restart, survive, grow and create employment, as well as to maintain existing employment and take back some workers. We recognise that businesses need a combination of access to finance, loans, direct grants, rate waivers and wage subsidies. The wage subsidy scheme has already cost the taxpayer over €2 billion but is money well spent and everybody recognises that. Most SMEs have told me that they could not have survived without it.

Most SMEs and business owners are practical people. They know that the taxpayer will not be able to write the cheque for every part of this. Some part of this credit guarantee will facilitate the refinancing of existing loans. I get it that businesses of all shapes and sizes are reluctant to take on more debt. One cannot blame them because it is an extra cost. We have to make it as easy as possible to access the finance and then keep costs as low as possible. That is what the State guarantee is about. We will reduce the costs, but access is important. All the research shows that access to money is the main priority for businesses. We can then trash out the cost. Getting one's hands on finance is the first priority for a business to survive. It might be for a new loan or just to reorganise the existing finances.

The way that this legislation and the legal agreements and documentation which will underpin it have been drafted is intended to provide assistance from the State to qualifying enterprises. The legislation leverages financial institutions and their network to provide much needed liquidity to our SMEs, small mid-caps and primary producers. Deputy O'Reilly quoted Chartered Accountants Ireland on the administration of and the red tape relating to the scheme. This scheme is not yet in operation, however. That has to be done in negotiations. The Deputy was referring to a previous scheme which we are now changing. Every effort will be made to make that easier. With the new criteria, that will happen and the scheme will be easier to administer. It will lead on to reduced interest rates across a whole range of financial products. It will be much more attractive for the financial providers to use it and for those drawing down loans.

Unlike the lending through Microfinance Ireland we discussed two weeks ago, this is not lending from the State but through participating financial institutions, such as commercial banks, credit unions and others, that will successfully apply via the Strategic Banking Corporation of Ireland's open call. Much of the focus last night was that this is only for the three main pillar banks. That is not the case. This is for all financial providers which want to provide loans to SMEs, including credit unions. The Tánaiste and Minister for Enterprise, Trade and Employment has been clear in his most recent meetings with the CEOs of the pillar banks that he expects an interest rate reduction from them for participating in the scheme in order that participating enterprises will benefit from those reductions. He has received positive indications from those banks and this will be reflected in the legal agreements for the scheme involving the Department, the Strategic Banking Corporation of Ireland and the financial institutions.

The interest rates for the Covid-19 credit guarantee scheme differ from other schemes administered by the Strategic Banking Corporation of Ireland such as, for example, the future growth loan scheme. Precise reductions are still under discussion. We need to remember that there will be different rates for different financial products, with different customer profiles and for different financial sizes. Accordingly, it is difficult to be precise about interest rates in this legislation. The reduction to customers will be transparent, however, when they sign the deal with banks or other institutions, as a result of this Government's support. This will also show the premium to be paid as part of the state aid rules.

This is a good opportunity for businesses to get strong levels of State support without any state aid implications. Also important is the fact that this scheme is a support for businesses, not for the banks. That needs to be stressed because it was missed in the debate last night. The advantage of a credit guarantee scheme is that it leverages the detailed local knowledge of finance providers, including banks, credit unions and others, in what supports are needed in their local communities.

The Department has the right of audit on all transactions. The Strategic Banking Corporation of Ireland will interact with the finance providers on a frequent basis. Between us, we will ensure that the discount has been applied. No doubt Deputy O'Reilly will be keeping an eye on the matter too. People will vote with their feet. If customers feel they are not getting a proper discount, they will not use the product.

Capital and-or interest moratoria for up to one year will be permitted under the scheme. It is important to emphasise, however, that any decision in this regard will be by agreement between the finance provider and the participating enterprise on an individual basis. This has been a matter for discussion between the banks and the Department. We should also remember that some of these loans may only be for terms of one to three years. It is not best practice to backload all the payments for a business into a short-term loan because this could lead to financial stress being just as acute at the end of the loan as the start. Naturally, the banks and other lending institutions will work with individual customers to see what terms suit them best. There is great scope to adjust at the local level for existing and new customers. Of course, it will be monitored.

The Government cannot accept restricting the use of any interest earned to solely cover the costs of administering the scheme. The costs of administering the scheme are quite large, for both the financial institutions and the State. If we were to charge these costs directly to the participating enterprises, it is likely that the interest rates would be much higher than the discount rates we are discussing with the banks. I accept that Deputy O'Reilly would like to see what that would entail. It is only when those discussions conclude and the scheme is up and running that we will get a real clear picture of what has been achieved as a result of this scheme. We are confident that this legislation will enable this conversation with the banks because it will allow them to make credit available cheaply.

The State is covering its own costs through Exchequer funding rather than passing these on to businesses. It is only charging the premium to cover the guarantee, which is required by state aid rules and which will be administered by the Strategic Banking Corporation of Ireland on behalf of the Government.

I hope Deputy O'Reilly understands that the Government's intention is to retain some flexibility in the operation of the legislation to allow for changing circumstances rather than freezing a given set of conditions into the primary legislation. This is why we are dealing with these issues by means of the statutory instrument, which sets out the details of the scheme and the operating agreement and other legal agreements involving the Strategic Banking Corporation of Ireland and the participating finance institutions.

We are acutely aware of the difficulties faced by enterprises and are doing all we can to put in place a range of measures to help those enterprises to recover from the impacts of Covid-19, as well as to keep the costs of these measures as low as possible. This includes the interest being charged on loans and the administrative costs of applying for schemes, as well as providing advice, guidance and grants through our enterprise agencies and helplines on the range of schemes available that are most suitable for the needs of individual enterprises.

In the debate on this Bill, reference has been made to what other countries are doing. We track what they are doing. A credit guarantee scheme similar to ours is in operation in many of them. They are slightly different versions. Most have a ratio of 80:20 like we do. Some have greater percentages of risk on the part of the state for lower loans of up to a maximum of €50,000. Our microenterprise loan provides up to €50,000 with a rate of practically 100%, given that it is a State-guaranteed bank. Not every scheme can be measured in one sentence, but we have tracked them all and we believe that our credit guarantee scheme is up there with the best in any other country. However, I accept that Deputies will only see that when it is up and running. One cannot judge what is going to happen in the future based on the current scheme, as it is different from the one proposed in this legislation.

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