Credit guarantee for small businesses 'overdue'

Wed, Apr 11, 2012, 01:00

LEGISLATION TO guarantee credit for businesses, published yesterday by Minister for Enterprise Richard Bruton, has been welcomed by the Irish Small and Medium Enterprises association (Isme). As well as issuing the Credit Guarantee Bill 2012, Mr Bruton has announced the appointment of an operator for the Temporary Partial Credit Guarantee Scheme as part of the Government’s “action plan for jobs”.

“The credit guarantee scheme will benefit innovative, job-creating businesses who face obstacles accessing credit because they do not have enough collateral, or because they operate in sectors which the banks are not familiar with.

“These are the businesses we need to stimulate our jobs recovery, and this Government is determined to make that process easier where we can,” Mr Bruton said.

It is intended to provide a 75 per cent State guarantee to banks against losses on qualifying loans to firms with growth and job creation potential who currently have difficulty getting finance from the banks.

Initially the scheme will facilitate up to €150 million of additional lending per annum to SMEs, in addition to the lending targets set for the pillar banks.

The scheme will be demand-led, and take-up and performance will be closely monitored.

A qualifying enterprise must not employ more than 250 persons.

Mr Bruton also announced that he has awarded a contract for the practical oversight, management and operation of the guarantee scheme to Maynooth-based company Capita Asset Services following a competitive tendering process.

Capita Asset Services is part of Capita plc which is a FTSE 100 company whose prime area of business activity is the provision of business process outsourcing services.

The State aid framework sets out the requirement that a premium must be charged to the borrower in return for the State guarantee. Recipient businesses will be required to pay the Minister (the guarantor) an annual premium of 2 per cent on the outstanding balance of the loan, assessed and collected annually in advance.

Welcoming the scheme, Isme chief executive Mark Fielding said: “We have been looking for it and it is long overdue.

“Our first request for something like this was in early 2009.

“One of the issues we have over the last year and a half is that many small businesses have been postponing investment decisions.

“We don’t see this as a silver bullet for all small businesses but it will be relevant for a number of marginal cases.

“The danger would be that the banks would try to substitute this scheme for loans that would have been granted anyway, so vigilance is called for to ensure that doesn’t happen,” Mr Fielding said.

The Bill, which was agreed by Government last week, will now be introduced to the Oireachtas, and it is expected to be enacted shortly.

BILL'S MAIN POINTS

Provides a 75 per cent State guarantee to banks on loans to firms with job-creation potential Intended to facilitate up to €150m of additional lending

Payment of 2 per cent premium charge to the Minister Qualifying firm must not employ more than 250 staff

Law passed by end of June

Contractor assigned to oversee scheme’s operation