Matt Shanahan (Waterford, Independent) | Oireachtas source

This Bill makes amendments to the Credit Guarantee Act and supports the needs of businesses to access additional finance in response to the economic difficulties resulting from the Ukraine war. I am a member of the Joint Committee on Enterprise, Trade and Employment and this is something we have been flagging and requesting to be done as quickly as possible.

The State-backed Ukraine credit guarantee scheme proposes to provide low-cost working capital of up to €1 million to SMEs, primary producers and small mid-caps on a six-year term with no collateral required for loans of up €250,000. The devil will always be in the detail. On the one hand, it sounds great - potentially six years moneys are available - but the Bill does not guarantee what the cost of finance will be or any terms and conditions the pillar banks might attach to that. In order to qualify for the scheme, the borrower will have to declare that costs have increased by a minimum of 10% on its 2020 figures. I do not think this will be difficult for any business trying to access this scheme. The borrower must show that the loan is required as a result of difficulties being experienced due to the Ukraine crisis. I presume this relates to the cost thresholds rising. It states that the business must be viable and it must be a new loan with no refinancing. I am not too sure what the statement that a business must be viable is supposed to mean. In respect of a good few businesses of which I am aware, if energy prices follow their current trajectory, it is very hard to see how these businesses will be viable without additional supports from the Government. They are certainly not in a position to take on more debt.

The loan as guaranteed is based on an 80% State-backed guarantee with 20% backed by the lender so it is much the same as what we did during Covid. The standard facility size varies from €10,000 up to potentially €1 million under the current Act. The Minister of State says this will remain for the State-backed Ukraine credit guarantee scheme. It also sets out that a broad range of facilities will be available from the lender so we are talking about flexibility in financing - overdrafts, term loans and potentially fixed-interest loans. Yet again, I would have thought that this is down to the individual lending provider. A premium guarantee of 0.29% of interest payable is required in order to provide that.

I have concerns that I wish to raise with the Minister of State. One involves interest rates. We know that over the course of the next year, we could see another interest rise of up to 0.75% or 1.5%. That raises the question of what the retail interest rate applied by the pillar banks in respect of somebody accessing this scheme will be.

Second, many businesses will require restructuring of their business operations. The problem is that they are going to need capital to keep the lights on but must also undertake restructuring of the business. This might require the payment of redundancy payments. Can they use some of this money if they want to downsize and have to let staff go? I think they probably cannot do so. How will that help them restructure their business?

I raised other concerns with the Tánaiste some weeks ago at a meeting of the Joint Committee on Enterprise, Trade and Employment. I asked him about the status of a company with warehoused debt during Covid. My understanding was that from about January or February of this year, companies that had availed of the warehousing debt scheme had started to open up and were making repayments on that warehoused debt. I understand that some of them were slow in getting going because their business had not recovered as they had hoped and there might have been some debt forbearance from Revenue. However, I believe that has come to a pretty drastic stop in the past three months. I am informed that the benign attitude Revenue took to businesses impacted by Covid up to now has come to an abrupt end and demand letters are going out for the repayment of restructured moneys, be they PRSI, PAYE or corporation tax, and that there have been demands with sheriff's notes attached. Certainly the environment has changed, which I presume is down to a tacit decision by the Department of Finance to figure out which businesses are viable and which ones can or cannot be funded into the future. This opens up the vista of many private businesses having to make decisions about whether they can find capital themselves to support their business activities and avail of this scheme or whether they are throwing good money after bad. I suggest that without a scheme other than debt financing, it will not be possible to save some of the businesses given that their energy costs have gone up 200%, 300%, 400% or 500%.

Energy inputs constitute a key measure for a lot of companies. I wrote to the Minister for Finance and raised the case of a processing company with the Tánaiste two weeks ago. The company in question has seen its average monthly energy costs go up from €8,000 to €57,000 per month. It employs 50 people and the increases in energy costs are still not finished. The difficulty is that this company uses gas and electricity in its processing. The business is based on heating and cooling and it uses heat for cooking but must also use it for sterilisation of machinery afterwards because it involves food processing. It requires refrigeration and freezing for the same reasons - to preserve food. It does not have a hope of making up the difference. Availing of the maximum of the Government scheme would provide it with €18,000 when the cost is €57,000, so it must find €39,000 every month. Unfortunately, this is the reality facing many businesses at different scales.

I also raised the issue of craft butchers with the Tánaiste last week. We have about 600 butcher shops. Some of these butchers spoke to the media recently. Their average energy costs have increased from between €800 and €1,000 per month to €4,000 or €5,000 for the same reason, namely, that they are using heat and refrigeration.

We are telling businesses that we need them to engage with mitigating strategies - solar panels being an obvious one. Small shops probably do not have the roof space to put up any solar panels in the first instance. Second, those trying to access a solar provider at the moment to install rooftop solar panels will find it very hard to get anyone with an installation window of less than five or six months to talk to them. That is the waiting time they are all quoting at the moment. Some of them do not have the panels or the workforce so telling businesses to put some solar panels on their roofs and they might get 20% of their energy costs back is not a mitigating measure because they will not be around in six months' time.

Another issue concerns people in intergenerational businesses. By that, I mean a parent or grandparent who started a business and passed it on.

I refer to businesses, particularly in the countryside, where a younger family member is working that business and part of the remuneration of the business is still being paid to the founder. That person might be contributing to a pension, getting a small support payment or whatever it might be. For people in this situation to find new capital, and it is probably not in the business, the only place it is possible to go is the shop of mom and dad, or perhaps an uncle or aunt if someone is lucky. The difficulty for these people is that they are being asked to put up capital they are probably trying to keep for their own pension requirements. They are wondering whether, if they put this money in and things continue to go badly for the next 12 to 18 months, all they will have done will have been to saddle the business with additional debt, keep a business that will ultimately not be viable going and cause their nest egg to go up in smoke.

Will the Department of Finance consider some kind of increased credit for such people? I know of a gentleman now cashing in a 20-year investment policy to put funds into his business as working capital because he has no home to go to in respect of trying to find alternative capital. The point is that this is money he was putting aside for his retirement, and this man is close to retirement age. In fact, I think he has already reached it. This is a hard decision. It is difficult to ask business owners to stump up in this way and to tell them we will support them with an energy rebate and fixed-cost debt because this is just not going to do it for them.

We must do more in the enterprise space in terms of trying to get people out to look at real and professional restructuring. The small company administrative rescue process, SCARP, legislation has been enacted. I would love to say that I hope it will not be used by many businesses but I am afraid it will be because, unfortunately, this will be the only way people will be able to get some protection from their creditors while they try to arrive at a new solution. Even in this context, many businesses will be included. To a degree, as I said, perhaps the Department of Finance is taking a longer term view of which businesses it should support and trying to see if the strongest can survive in the months to come.

From the level of communication I am receiving, I would say there are significant problems among SMEs. We must do more. This is a start, but I am concerned that many businesses are not going to get financed. We could not get the pillar banks to take on risk during Covid-19, even when they were only handling 20% of the risk. They would not take that on and that was a problem. It is going to be a problem here as well because many banks are going to look at cash flow numbers, sales projections and margins and tell people their businesses are not going to stand up to all these repayments, particularly when energy costs have gone up by 300% or 400%.

I know we are in a difficult position and the Government is trying to do something but, unfortunately, I believe we must do more. Although this measure is a start, I honestly do not think it will be enough. We must do something far more significant in respect of energy credits on an ongoing basis.

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