AIB has set up a €100 million fund to provide early-stage small businesses with loans of up to €60,000, the bank announced yesterday.

The bank has also joined up with the Small Firms Association (SFA) and will cover the cost of the first year's SFA membership for qualifying businesses. The loans, which will be available to businesses with fewer than 20 employees that have been established in the last three years, have a variable interest rate of 6.25 per cent.

This is the lowest published rate on the market for business loans under €60,000. Halifax (formerly Bank of Scotland Ireland), which is active in the business banking sector, does not publish its rates.

John Kelly, head of AIB SME strategy, said the launch of the loan fund was timely given the current environment of rising interest rates and the rate of new business start-ups. Some 18,000 companies are expected to be set up in 2006 and the SME market is expected to exceed 250,000 firms by the end of the year.

AIB estimates that there are currently 235,000 SMEs operating in the Republic, up from an estimated 90,000 in 1998. Based on current trends, there will be more than 285,000 SMEs in operation by 2010.

The main growth in business activity has occurred in the main urban areas, AIB said, but also in counties such as Meath, Kildare, Wicklow and Clare.

Meanwhile, according to the Business Start-Up barometer published yesterday by Bank of Ireland, some 15,161 new companies have been formed so far this year, with the rate of start-ups 2 per cent higher on last year.

Construction and civil engineering remains the top sector for start-ups, with 1,877 new companies formed in 2006. The second-placed sector for start-ups, with some 1,822 new companies, was real estate, showing the economy's reliance on the property sector. Consultancy was also a popular start-up choice, Bank of Ireland said, with 748 new businesses formed.

"2006 has been a strong year for business formation activity as Ireland continues to be recognised as the most entrepreneurial country in the EU," said Emer McDonnell, business recruitment manager at Bank of Ireland.

"Year-on-year progress has been consistent and we expect momentum to continue across all sectors for the remainder of this year and into 2007," she said.

According to the 2005 Global Entrepreneurship Monitor report, new businesses are predominantly started by well-educated people in their mid-thirties.