SMEs baulk at criteria for State's loan scheme

The Government’s €200 million Covid-19 working capital fund for small businesses has seen a muted level of drawdowns amid concerns that the programme is not fit for purpose.

The Strategic Banking Corporation of Ireland (SBCI) scheme, unveiled on March 10th, has so far resulted in €17 million of loans being granted to 100 borrowers, according to figures provided to The Irish Times from the organisation.

“The issues with the scheme are that [it] evolved from unutilised funds under the Brexit Loan Scheme and the criteria remained the same. To be eligible, businesses must meet one of the ‘innovation’ criteria, which is seen as an unnecessary and confusing hurdle by SMEs,” said a banking source.

“It also requires the submission of a business plan, which can be difficult in the current environment. Also, it is viewed as being too short-term in nature with a maximum term of three years.”

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The SBCI has received about 2,000 eligibility applications for the scheme, but these will not be turned into full loan applications until SMEs “have satisfied themselves on what their specific financing requirements are,” a spokesman for the agency said.

The low take-up to date is adding to pressure on the Government as it considers additional supports for small businesses and weighs up a staged easing of restrictions over the coming months.

Guarantee schemes

The Department of Public Expenditure and Reform secretary general Robert Watt signalled this month that the Government is looking at enhanced SME guarantee schemes, open-ended grants, and cases for equity capital support as it plans for the next stage in the economic battle.

In the UK, the chancellor of the exchequer, Rishi Sunak, bowed on Monday to pressure to offer full guarantees for emergency loans of up to £50,000 (€57,375) for small companies hit by the Covid-19 shock. Loans between this amount and £5 million will remain subject to an 80 per cent guarantee announced last month.

Countries such as Germany and Switzerland have introduced schemes offering full state guarantees for loans to SMEs.

"You can understand why SMEs in Ireland aren't going after the Covid-19 working capital scheme when you see what's on offer in other jurisdictions and they're waiting for what's coming around the corner here," said Eoin Christian, chairman of Independent Finance Providers of Ireland.

The European Central Bank said on Tuesday that a survey of 144 lenders showed demand for loans from European businesses has surged since the coronavirus pandemic started, while banks have moderately tightened their lending criteria.