State credit guarantee scheme for businesses opens for applications

Up to 80% of borrowings advanced to firms under scheme’s auspices is guaranteed

Scheme could be extended to include non-bank lenders. Photograph: iStock

Scheme could be extended to include non-bank lenders. Photograph: iStock

 

The Government’s €2 billion Covid-19 credit guarantee scheme opens for applications today and will run until the end of the year.

The scheme, which provides a State guarantee for 80 per cent of borrowings advanced to firms under its auspices, is aimed at companies that have lost 15 per cent of actual or projected turnover.

Loans of €10,000-€1 million are available under the scheme, which initially will be made through Bank of Ireland, AIB and Ulster Bank. Officials are working to bring lending to market through other providers.

Interest rates attached to the loans are expected to be well below those normally available to small and medium enterprises, due to the State guarantee. While interests rates will vary depending on the detail of the loan, the Government has promised they will be lower than those available in the market.

The Central Bank has estimated that SMEs may need up to €5.7 billion in liquidity to deal with the impact of Covid-19. Tánaiste and Minister for Business Leo Varadkar said the scheme is an “unprecedented measure [to] ensure businesses have access to the finance they need at this unprecedented time”.

Initial focus

The initial focus of the scheme is on term loans but the Government has indicated that support for other loan products may be added in the future, such as overdraft facilities and working capital lending.

Minister for Finance Paschal Donohoe said the scheme was a “critical component” of the measures introduced by the Government to assist firms hit by coronavirus. Minister for Public Expenditure and Reform Michael McGrath said he wanted to see the scheme also being extended to include non-bank lenders.

Loans are available to agricultural and fishing firms in order to “ensure that the disruptions caused by the pandemic do not undermine the ongoing viability of food production”, Minister for Agriculture Charlie McConalogue said.

The scheme is operating under exceptions to normally tight EU rules on state aid to companies, which have been loosened due to the pandemic. However, this also means it will only be in operation until the end of the year.