Leo Varadkar (Dublin West, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The COVID-19 Credit Guarantee Scheme will facilitate lending up to €2 billion to SMEs, primary producers and small mid-caps (i.e. companies under 500 employees). 

This credit is urgently needed by enterprises seeking to react to the changed economic landscape and the need to restock and change business practices in response.  It will ensure that SMEs, primary producers and small Mid-Caps can access liquidity to keep their businesses operating, as our economy continues to re-open and more and more people get back to work.  The legislation to implement the Scheme recently passed through the Houses of the Oireachtas.

The Scheme is being developed under the provisions of the European Commission’s “Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak”.  This allows for such schemes to support the needs of enterprises responding to the economic shock caused by the COVID-19 health crisis.  The temporary framework allows for the relaxation of certain State aid measures for a limited time to enable EU Member States to support enterprises in their country.  The temporary framework is due to expire on 31st December 2020. 

The main features of the COVID-19 Credit Guarantee Scheme are:

- This is a scheme for SMEs, Primary Producers and small Mid-Caps.

- In order to qualify for the Scheme, the borrower will have to declare an adverse impact of minimum 15% of actual or projected turnover or profit due to the impact of COVID-19.

- The amount available under the COVID-19 Credit Guarantee Scheme is €2 billion.

- A guarantee rate of 80% for the State with the lenders retaining 20% of the risk of the loan.

- There will be no portfolio cap for individual lenders.  A portfolio cap has been a feature of previous Credit Guarantee Schemes.  However, the removal of the cap for the COVID-19 Credit Guarantee Scheme is essential in order to ensure lenders provide an interest rate reduction to borrowers. 

- The current standard facility size of €10k to €1 million under the current Acts will remain for the COVID-19 Credit Guarantee Scheme.

- The COVID-19 CGS will be operated by the Strategic Banking Corporation of Ireland and will initially be available through three banks; AIB, Bank of Ireland and Ulster Bank.

- Finance providers have indicated they will initially provide term loan facilities under the Scheme. 

- The new COVID-19 Credit Guarantee Scheme has been prepared in order to comply with the terms of the European Commission’s Temporary State Aid Framework.  In particular:

- Primary agricultural, fisheries and aquaculture producers may be included.

- A guarantee premium on each loan under the Scheme is required by the European Commission to be paid in addition to interest rate costs.

- The scheme will be timebound and will be available initially until 31 December 2020.

- The rollover of loans will be facilitated but no loan included in the Scheme can extend beyond 6 years or 31 December 2026, whichever occurs first. 

- The size of the loan is linked to business turnover (25% of 2019 turnover) or wage costs (double annual wage bill in 2019).  The borrower and lender must demonstrate that the loan is compliant with this.

Loans will be made available for liquidity and investment purposes.  It is expected that loans will be sought for purposes of working capital and re-fitting of premises to ensure compliance with COVID-19 restriction requirements. Lending will be available, as an example, for small business to use for the purposes of restocking their supplies, purchasing services or upgrading equipment.