Fianna Fáil Spokesperson on Business, Enterprise and Innovation, Robert Troy, has called for urgent legislation to get the new €2 billion credit guarantee scheme up and running.
Deputy Troy explained, “It has been nearly two weeks since the Government announced plans to introduce a new €2 billion credit guarantee scheme for SMEs to help them through the COVID-19 crisis.
“This new scheme needs primary legislation, which can only happen once a Government is formed. Businesses the length and breadth of this country are crying out for such a scheme given that the existing scheme in place since 2012 is not fit for purpose. Legislation needs to be enacted as a matter of urgency.
“A credit guarantee scheme is when the State guarantees a portion of a loan meaning that the risk of the loan defaulting falls mostly on the State. This means that the losses to the bank and the borrower are limited.
“The problem with the current scheme is that it is far too restrictive. Even in good times the take up has been poor so it is not altogether a surprise that uptake during the crisis has been stagnant.
“For a start the interest rates on the existing scheme match the interest rate on regular SME loans provided by the bank. There is also a premium of 0.5% on top of that. This makes the existing scheme costly to both the bank and the borrower. We have been told that the interest rates on the new scheme will be below the market rate. This will make the scheme far more attractive to struggling SMEs.
“The new scheme will be opened up to more businesses whereas the current scheme is not available to primary producers such as those in the agriculture and fisheries sector. Under the existing scheme the borrower is highly restricted in what they can use the loan for which is of course major issue given the current crisis. With the new scheme a business can borrow for overdraft and working capital purposes.
“For lenders there is a highly restrictive portfolio cap under the existing scheme while with the new scheme the cap is far higher at 50%. It is arguable that this cap should be removed altogether as is the case in other countries. Effectively, the lower the portfolio cap the bigger the disincentive for the bank to lend under the scheme. The new scheme is also open to more lenders than the current scheme.
“It is abundantly clear that the current credit guarantee scheme is simply not up to the task given the COVID-19 crisis. If we are serious about helping SMEs throughout the country, we need a Government to be formed urgently and for this legislation enacted as soon as possible thereafter”, concluded Deputy Troy.
