The Minister for Jobs, Enterprise and Innovation, Richard Bruton TD, has today published the Credit Guarantee Bill 2012, and announced the appointment of an operator for the Temporary Partial Credit Guarantee Scheme.
The Scheme aims to provide much-needed credit to job-creating SMEs who currently struggle to get finance from the banks. It is intended to address market failure affecting commercially viable businesses in two specific situations – namely, where businesses have insufficient collateral, and where businesses operate in sectors with which the banks are not familiar – and provide a 75% State guarantee to banks against losses on qualifying loans to firms with growth and job creation potential.
Initially, the scheme will facilitate up to €150m of additional lending per annum to SMEs, in addition to the lending targets set for the pillar banks. The Scheme will be demand-led, and take-up and performance will be closely monitored.
For every €150million of additional lending, the Scheme is expected to benefit over 1800 businesses. The cost of the Scheme per €150million of lending is €6.38million. However this does not take into account benefits to the exchequer this lending will bring in terms of increased tax receipts and decreased social welfare payments. When these benefits are taken into account, the net gain to the Exchequer is over €25million per €150million of lending.
The principle measures in the Bill include:
- Empowering the Minister for Jobs, Enterprise and Innovation, to give a 75% loan guarantee
- Procedures for designating a lending institution as a participating lending institution
- Provision for the payment of a 2% premium charge to the Minister by participating SME borrowers,
- The setting of eligibility criteria for borrowers, in line with the European Commission definition of an SME. A qualifying enterprise must not employ more than 250 persons.
- Provision for review of the scheme at any time. The Government have agreed to review the Scheme after one year of operation.
- Assigning a contractor to oversee the operation of the Scheme.
Add On: Welcoming the announcement, ISME CEO, Mark Fielding stated “while this long-awaited initiative will not be the ‘silver bullet’ for all small businesses, it will certainly be of assistance to those who have been refused bank credit in the past, due to insufficient collateral. The additional government guarantee will make it much more difficult for banks to refuse viable SMEs’ requests for loan finance, which has become a debilitating feature of economy since September 2008”.
Minister Bruton also announced that he has awarded a contract for the practical oversight, management and operation of the Guarantee Scheme to Maynooth-based company Capita Asset Services following a competitive tendering process.