The Government has promised to push through legislation “next week” to enact its €2 billion Covid-19 credit guarantee scheme for SMEs. This will involve the State guaranteeing up to 80 per cent of low-cost loans for small businesses affected by the pandemic.
The Government will also tweak it to remove a “portfolio cap”, which was attached when the scheme was first mooted two months ago. The cap meant the State would limit the proportion of the loans of any individual bank that it would pay out under the guarantee.
However, that cap will now be lifted, pushing the State’s maximum possible exposure under the scheme to €1.6 billion, were the economy to collapse and every loan in the scheme to go bad.
The Department of Business said the cap needed to be removed to allow the three participating banks – AIB, Bank of Ireland and Ulster Bank – to offer lower interest rates and also adhere to capital buffer rules. The scheme is being administered through the State's Strategic Banking Corporation of Ireland.
The department said that “removal of the portfolio cap is essential in order to ensure lenders provide much-needed liquidity to businesses, and signals the strength of the Government’s policy response to the unprecedented health pandemic and economic crisis. Restoring liquidity to borrowers will be a critical feature of economic recovery.”
Minister for Business Leo Varadkar told RTÉ on Tuesday morning that the scheme will be "up and running" by September or October. He said the scheme was about "giving businesses access to loans on much better terms and conditions than they have now," adding that features like a payment free period at the beginning of the loan term will be included.
Asked why the Government wouldn’t guarantee 100 per cent of loans, like a similar UK scheme, Mr Varadkar said that “that’s a mistake”, adding that banks wouldn’t have any “skin in the game” if that were the case.
To qualify for the cheap loan scheme, businesses must have fewer than 500 employees. They would also need to declare a hit of at least 15 per cent to profits or turnover due to the pandemic. Loans from €10,000 to €1 million are available. Under EU state aid rules, the scheme is initially time bound and runs only until the end of December, while no individual loan can extend past 2026.
