The purpose of the SME Credit Guarantee Scheme is to encourage additional lending to SMEs, not to substitute for conventional lending that would otherwise have taken place.
The Scheme is targeted towards companies who are unable to access credit because of three distinct barriers to lending;
- Inadequate collateral
- Novel business market, sector or technology which is perceived by lenders as higher risk under current credit risk evaluation practices
- Need for refinancing caused by the exit of an SMEs lender from the Irish market
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. Currently, Ulster Bank, Bank of Ireland and AIB are participating in the Scheme.
The Department plays no role in the application or decision making process, which, 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 premium which partially covers the cost of providing the guarantee. The premium can vary but for the period July 2019 to 2020 it will be 0.5%. 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.
Review of Credit Guarantee Scheme