New changes to the Credit Guarantee Scheme making it easier for SMEs to get access to credit are set to come into force soon as President Higgins signed the bill into law this week.
The key aim of the Credit Guarantee Scheme is to help businesses who have been refused bank credit to access finance. Fundamentally, the Scheme allows Government to act as guarantor for a small business' loan, provided that the business has growth and job creation potential. Since the Scheme was set up in 2012, it has has helped some 279 companies with loans of more than €45million backed by the guarantee, creating 1,142 new jobs and maintaining a further 907.
So what are the changes, and how will they affect small business? Read on to find out...
Making it easier for SMEs to get access to finance
When first introduced, the guarantee covered 75% of a loan, but new changes will see this guarantee go up to 80% of a loan.
Other changes to the Credit Guarantee Scheme include:
- The definition of "lender" has been broadened to include other financial product providers such as lessors, invoice discounters and other non-bank financiers
- The definition of loan agreements has also been changed to include non-credit products such as invoice finance and leasing, and to include overdrafts
- State Institutions such as the Strategic Banking Corporation of Ireland can now work with the Scheme to help SMEs access credit
How does the Scheme work?
The Credit Guarantee Scheme was launched in 2012, as a measure in Government's Action Plan for Jobs. The Scheme aims to provide 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.
The borrower pays a 2% annual premium, which partially covers the cost of providing the guarantee. Businesses seeking to avail of the guarantee scheme can approach a participating bank. Participating lenders will make all decisions on lending.
SMEs may avail of both an SBCI loan and the Credit Guarantee Scheme, subject to approval by the relevant lender. SMEs may apply for an SBCI loan, and if they are declined, or are offered a facility that does not meet their needs for the reasons detailed above, may be offered an SBCI loan under the Credit Guarantee Scheme. Using both products allows the SME to avail of lower cost SBCI funding while providing the assurance of the Credit Guarantee Scheme to the lender.
The lender is ultimately responsible for the credit decision. In the event of a decline the SME has the option of using the lenders internal appeals mechanism and, if the original decline decision is upheld, referring the decision to the Credit Review Office.
To find out more....
Find out more about the Credit Guarantee Scheme.
Find out more about the Action Plan for Jobs
It's also one of the supports in the Supporting SMEs Online Tool which has over 80 Government supports for SMEs in one location.