Access to Credit
SME Credit Guarantee Scheme
The purpose of the scheme is to encourage additional lending to SMEs, not to substitute for conventional lending that will otherwise have taken place.
Scope - The Scheme is intended to address two distinct barriers to lending;
- inadequacy of collateral (Pillar 1) and
- inadequacy of understanding of the novelty of a business model, market, sector or technology (Pillar 2).
It will be exclusively targeted towards companies who are unable to access credit because of these 2 particular market failures.
The Scheme is to operate under the De Minimis State Aid rules.
A State guaranteed loan constitutes De Minimis State Aid. The aid attributable to the Scheme loan facility is calculated individually for each facility, but is typically around 20% of the value of the loan facility.
A guaranteed loan does not preclude a business from obtaining other State Aid in the form of grant funding.
No business may receive more than ¤200k of De Minimis State Aid, including that arising from the current Scheme application, in any rolling three year period.
Businesses seeking to avail of the guarantee scheme can approach a participating bank. Participating lenders will make all decisions on lending. Initially Ulster Bank, Bank of Ireland and AIB will participate in the Scheme.
The Department will play no role in the application or decision making process. Delivery of the SME Credit Guarantee Scheme, including the decision on whether or not it is appropriate to use it in connection with any specific lending transaction, is fully delegated to the participating Lenders.
The lender assesses viability, that is, whether the business will be able to make the necessary repayments on the credit, according to its normal assessment criteria and the decision of the lender in terms of assessing viability is final. The baseline for determining commercial viability within the Scheme should be no different from the standard viability test applied by each Lender within their normal commercial SME lending procedures.
There is no automatic entitlement to receive a guaranteed facility even if a business believes it satisfies the basic eligibility criteria. The normal re-dress processes are available to declined businesses.
The borrower pays a 2% annual premium which partially covers the cost of providing the guarantee. The premium is collected annually or quarterly in advance throughout the three year life of the guarantee based on the annual contracted principal balance. The Scheme Guarantee Premium is the amount of money the borrower pays as a contribution towards the costs of the State providing the Scheme. As such it is analogous with an arrangement fee payable for the provision of a facility, and not an insurance premium paid to give the borrower protection against their inability to repay a facility which has been provided.
Types of Eligible Loans
The Scheme is designed to be able to be used to support a range of debt instruments appropriate to the borrowing needs of SMEs. Term loans and other instruments such as on-demand performance bonds will be covered by the Scheme.
• Primary production in agriculture, horticulture and fisheries are excluded from the scope of the scheme in the light of particular restrictions under the De Minimis State Aid rules. Note the food and drinks sectors will be eligible for the Scheme.
• Refinancing of existing debts will be excluded as the purpose of this Scheme is to facilitate additional lending into the economy. Such arrangements will continue to be dealt with by banks under their current lending arrangements. However in cases where new lending is sought along with refinancing, the availability of a guarantee in respect of the new lending element should be of assistance in providing an overall package of support to the business, including consolidation of existing debts.
• Overdrafts will be excluded from the Scheme.
• Property-related activities will be excluded from the Scheme.
Credit Guarantee Scheme 2015
On 23rd February 2015 the Minister of State for Business and Employment Gerald Nash TD announced changes to the Credit Guarantee Scheme for the purpose of expanding the scope of the existing Credit Guarantee Scheme.
The changes will allow for the refinancing of loans where an SME's bank is exiting the Irish SME Credit Market and the extension of the maximum length of the guarantee from three to seven years. The Credit Guarantee Scheme 2015 became operational on 16th April 2015.
Bank of Ireland is currently the only bank signed up under the Credit Guarantee Scheme 2015.
Last modified: 22/05/2015