Thursday, 29 April 2021
Department of Enterprise, Trade and Employment
Covid-19 Pandemic Supports
5. To ask the Minister for Enterprise, Trade and Employment the steps that can be taken to provide low to zero interest loans to SMEs that will struggle to reopen after lockdown and are responsible for 80% local employment in some areas. [22558/21]
Since the onset of the pandemic, my Department has worked to ensure that there are measures in place to help businesses to access appropriate financing in response to the challenges of trading in the environment brought about by COVID-19. Initially, this meant the adaptation or expansion of existing schemes to ensure support could be in place as quickly as possible. The first two such schemes to launch were the COVID-19 Business Loan available from Microfinance Ireland [MFI] and the COVID-19 Working Capital Scheme [WCS].
MFI provides vital support to microenterprises by filling the lending gap in the market by lending to businesses that cannot obtain loans from other commercial lenders. It lends to business that do not meet the conventional risk criteria applied by commercial lenders and applies interest rate charges for its lending which are not reflective of its credit risk.
Subsidised rates of interest have been applied in respect of MFI’s COVID-19 Business Loan with an interest rate of 4.5% available to all micro-enterprises where the application is made through the Local Enterprise Network or where referred by a bank or Local Development Committee. The new rate for direct applications to MFI is reduced to 5.5%.
Under the terms of the SBCI COVID-19 WCS, the maximum interest rate that can be applied to a loan is 4%, which represents a significant saving when compared with other similar lending in the market.
While these adapted supports were deployed as quickly as possible, work was also under way on the development of a tailored loan guarantee scheme to fit the specific needs of COVID-19-impacted businesses. Launched in September of 2020, the COVID-19 Credit Guarantee Scheme [CGS] makes up to €2b in lending available to businesses that have been negatively impacted by the pandemic. Where eligible, the scheme also allows for the refinancing of other COVID-19-related debt.
The COVID-19 CGS was developed with the specific goal of widening the pool of participating lending institutions. To that end, the participating finance providers under the scheme include three banks, four non-bank lenders, and nineteen credit unions. The delivery of these schemes through commercial finance providers allows the Government to leverage existing lending infrastructure that these lenders have in place around the country, ensuring accessibility for impacted businesses.
However, the operation of loan schemes through commercial finance providers also means that there is less scope to bring the interest rates down further than they are at present, as some interest must be charged by lenders if they are to cover overheads and capital costs if they are to continue to work with Government.
Significant effort was made to achieve the lowest interest rates possible under the scheme, but there are capital requirements that the participating finance providers must meet, as well as costs to them in delivering the scheme. As such, there is a variation in interest rates depending on the lender and the details of the loan sought, though 96% of loans drawn under the scheme have been provided at interest rates of between 2.5% and 2.99%.
It should be noted also that each of the loan guarantee schemes described above allow for moratoria or interest-only payment periods, depending on the participating providers’ assessment. This should also help in providing a degree of flexibility for businesses approaching reopening.