Bank policies limit small firms’ growth, says Noonan

Irish banks are preventing small businesses from growing "beyond a certain size" because they only offer them short-term loans, according to Minister for Finance Michael Noonan.

Speaking yesterday at the launch of the Strategic Banking Corporation of Ireland (SBCI), which will make up to €5 billion in cheap, longer-term loans available to small and medium-sized businesses over five years, the Minister pointed out these enterprises were a very important part of the economy.

“But once they reach a certain size they do not continue to grow,” he said. Mr Noonan explained the current financing model was hindering their ability to expand.

He said while the banks provide these businesses with working capital, they will typically want term loans repaid in three or five years. Mr Noonan and his colleague, Minister for Public Expenditure and Reform Brendan Howlin, said the SBCI would offer, low-interest, longer-term and flexible financing for small business.

The corporation is basing its approach on that of one its backers, German state-owned bank KFW, which is providing €150 million of the initial €800 million the SBCI is making available to potential borrowers.

Job creation

Mr Howlin said the money will be available small and medium- sized enterprises that want to expand and create jobs. The Government hopes the SBCI will begin lending the money before the end of the year.

Both Ministers denied KFW’s €150 million was a quid pro quo for the Republic not seeking a conditional funding line when it exited its EU/IMF bailout last year. “The scale indicates that it has no connection at all,” Mr Howlin argued.

The European Investment Bank (EIB) is providing €400 million, while the balance of the initial €800 million will come form Republic’s National Pension Reserve Fund.

“We have big plans for the SBCI and it will be a key source of funding for years to come,” Mr Noonan said. “The legislation which established the SBCI allows for up to €5 billion to be made available to SMEs over the next five years.”

German finance minister Wolfgang Schauble, EIB president Werner Hoyer, KFW chief executive Dr Ulrich Schröder, and National Treasury Management Agency chief executive John Corrigan, joined the two Cabinet members at a formal signing ceremony in Farmleigh House in Phoenix Park, Dublin, yesterday.

The money will be loaned through the high-street banks.