John Perry (Sligo-North Leitrim, Fine Gael)

Survival may be the new success. People may be preoccupied with this issue. It is far more difficult to get money from banks in recessionary times and there is more risk in our current recession. We must be clear about that.

I recommend that Senators go through the Enterprise Ireland annual report, which is an extraordinary document. I compliment that body on the document, detailing high potential start-up companies and the plan of services that will be initiated shortly. There will be local enterprise offices in every county, centralisation of business supports and collaboration of services. That will be a significant facility. The Minister, Deputy Bruton, has initiated a loan guarantee scheme, which is a major initiative.

Senator White mentioned companies employing up to 250 people, which would be the upper end of the scale. I do not see such firms going into this borrowing sphere, which is aimed at companies employing fewer people. There is a facility within Enterprise Ireland that includes experts working on behalf of companies that can work with banks. Since being appointed I have toured the country and although I have seen challenges and job losses, there are also extraordinary success stories involving companies endeavouring to survive. Those companies may be making an application through Enterprise Ireland and proceeding through due diligence, exploring viability of loans and return on investment.

The pillar banks have informed the Minister for Finance, Deputy Noonan, that the lending targets for 2011 have been met. This year the lending target is €7 billion. I have said time and again that people are not going through the proper process. If a business is refused a loan facility in a bank, it has 15 days to make an appeal, and that process should be taken up. There is an obligation within the banking code of conduct for a reply to be given within 15 days. If that option is exhausted, there can be an appeal to Mr. Trethowan's Credit Review Office for a simple fee, and every second application decision has been overturned in that process.

I have heard people complaining about banks when they have not even made an application. There is a simplified application procedure involving Bank of Ireland, Ulster Bank and Allied Irish Banks. It is a simple form and people can now apply to all these institutions to see whether they can avail of facilities, even outside the loan guarantee scheme. People say if there is no problem, there is no business, and there will always be problems in business. Even in the good times it was difficult to avail of money.

I thank the Senator for raising the points in amendments Nos. 1 and 2. Section 8 provides that the borrower shall pay to the Minister an amount equal to 2% of the principal of the loan to which the agreement relates. The Senators would prefer a provision allowing the Minister to vary the rate of the levy depending on the administration costs relating to the loan application. Such a provision would allow the bank to decide what each borrower would pay.

It must be emphasised that the 2% premium is not a charge from the bank for administration costs but rather a payment to the Minister in exchange for receiving a guarantee from the State. The premium receipts will be treated as income to the State and will offset against the cost of settling guarantee claims, which are inevitable. There is a big difference between requiring borrowers to pay a level equal to 2% of the outstanding principal and allowing banks to decide what the levy should be in respect of different applications. The proposal is too vague and would confer far too much discretion on the Minister - which is important - as well as the banks. It could also present constitutional problems under Article 15.2.1° of the Constitution as being an excessive delegation of legislative power to the Minister.

The lower the premium, the greater the proportion of the cost of claims that would be borne by the State. For example, if the 2% were reduced to 1%, the cost to the State would increase by approximately €5.5 million per €100 million of lending. Senator White mentioned that this €150 million is just the start. The de minimis state aid regulations provide two alternative approaches to premium pricing in respect of loan guarantees, with guarantees allowed to be priced individually or on a scheme-wide basis. For simplicity, the latter was recommended and chosen.

The minimum premium levels related to the credit quality of the borrower proposed in the state aid regulations are as follows. The option of adequate payment capacity is 0.8% and the option of payment capacity likely to be vulnerable to adverse conditions is between 2% and 3.8%. The option of payment capacity likely to be impaired by adverse conditions is in the range of 3.8% to 6.3%. In consideration of these categories and recognising the current state of the small and medium enterprise lending market in Ireland, it is difficult to justify making the case for a premium rate any lower than 2%, and the Minister has therefore decided to apply that rate. In light of those reasons, I cannot accept the amendments.