Thursday, 18 February 2021
Department of Enterprise, Trade and Employment
Credit Guarantee Scheme
1. To ask the Minister for Enterprise, Trade and Employment his views on whether the credit guarantee scheme should be amended to ensure a greater approval rate from banks on loan applications and to give access to a wider range of SMEs; if the scheme will include refinancing of existing loans and overdrafts at a far more competitive interest rate to enable businesses rebuild their financial positions following the crash and Covid-19 putting them in a far better position to deal with the post Covid-19 challenges; and if he will make a statement on the matter. [9231/21]
A new COVID-19 Credit Guarantee Scheme (CCGS) was developed and launched in September 2020. Loans of up to €1 million are available for up to five and a half years at reduced interest rates for working capital and investment purposes. Loans under €250,000 do not require collateral or personal guarantees.
The Scheme was developed in accordance with the European Commission’s State Aid Temporary Framework and is available to SMEs, small Mid-Caps and primary producers in a wide range of sectors that meet the eligibility criteria.
While the State provides a guarantee on these loans, the Department plays no role in the application or decision-making process in relation to loans offered under the Scheme, which, is fully delegated to the participating lenders. There are clear eligibility criteria including a minimum impact of 15 percent on turnover as a result of COVID-19 and a return to viability in the future. These features were set by the European Commission in their State Aid Temporary Framework. Private finance providers have the widest network and closest relationship with Irish businesses to make these assessments.Where an applicant has had a loan application refused, they may wish to appeal the decision to the Credit Review Office (CRO). The CRO helps SMEs who have had an application for credit of up to €3 million declined or reduced by the main banks.
A key focus of the COVID-19 Credit Guarantee Scheme is to make additional lending available to business for liquidity purposes and investment. It is a matter for individual participating lenders to determine the financial products that they make available under the scheme, with term loans being the dominant product currently being offered. All finance providers are required to demonstrate reduced interest rates to the participating business. The latest data in respect of interest rates charged on drawn loans up to the end of January, shows that interest rates range from 2.00% to 3.99%, with 98% of loans provided at an interest rate of between 2.50% and 2.99%. These are significantly reduced rates on commercial loans rates of the same term and size.
Refinancing may be permitted in respect of COVID-19 related expenses that were funded through short term or temporary facilities such as overdrafts. However, any provision for potential refinancing must have been agreed as part of the initial finance agreement. The wholesale application of refinancing is not permitted within the terms of the scheme as approved under the Temporary Framework.
My Department has worked extremely hard to ensure there is choice out in the market for Irish businesses seeking state supported lending. Since January, 19 Credit Unions and 3 non-bank lenders have successfully joined the CCGS as finance providers. More are expected to be announced in the coming weeks. This long-term policy goal of diversification will add competition in the market and ensure a wide range of loan products being available. I encourage businesses to consult the CCGS pages on the Strategic Banking Corporation of Ireland’s website for a full list of participating finance providers.