The government has reportedly promised to push through legislation next week to enact the €2bn SME credit guarantee scheme while there will also be changes to how the scheme operates.
The scheme will provide liquidity to SMEs with fewer than 500 employees who have seen their turnover or profit fall by at least 15% due to the coronavirus crisis, with loans of €10,000 to €1m being made available from AIB, Bank of Ireland and Ulster Bank through a range of products including overdrafts, term loans and working capital.
Furthermore, the government will tweak the scheme to remove the portfolio cap in place, which currently only sees the State only cover of 50% of a bank’s aggregate exposure, so effectively just a 40% guarantee, which was having a major impact on banks’ appetite to lend.
Once in place the programme will be largest credit guarantee scheme in the history of the state, with the State facing a maximum potential liability of €1.6bn. Goodbody Stockbrokers say that given the experience in the UK to date, a strong case can be made for increasing the guarantee to 100%. Goodbody believe that such a move would lower the barriers to, and costs of, accessing credit for SMEs at a critical time, with knock-on implications for employment.
According to Goodbody Stockbrokers, "Overall, the implementation of the necessary legislation to enact the Credit Guarantee Scheme is welcome in the context of ensuring access to credit for struggling SMEs. We also welcome the removal of the portfolio cap on lending which brings the effective level of the guarantee to the minimum we would deem workable."