New changes to Credit Guarantee Bill will make it easier for SMEs to get access to credit - Minister Nash
President is expected to sign the Credit Guarantee (Amendment) Bill into law this week
The Minister for Business and Employment, Ged Nash TD, has today (Monday 1st February 2016) welcomed the passing of all stages of the Credit Guarantee (Amendment) Bill 2015. The bill has now been sent to President Higgins to be signed into law this week.
The Credit Guarantee Scheme aims to help viable businesses which have been refused conventional bank credit facilities access a state-backed guarantee. When it was originally introduced the guarantee covered 75% of their loan. The borrower pays a 2% annual premium, which partially covers the cost of providing the guarantee.
The extension to the Bill should make it easier for small and medium sized businesses to get access to finance. The main changes to the Credit Guarantee scheme include:
- Broadening of the definition of lender in order to cover additional financial product providers such as lessors, invoice discounters and other non-bank financiers
- Changing the definition of loan agreements to include non-credit products such as invoice finance and leasing, and to include overdrafts;
- Re-balancing the level of risk between the State and the extended finance providers, with the State taking an 80% share, up from 75% previously
- Enabling State institutions like the Strategic Banking Corporation of Ireland to work with the Minister to enhance the provision of credit to SMEs
- Empowering the Minister to give counter-guarantees that will enable the SBCI to unlock matching guarantee facilities from EU sources and thus better share the risk across the banks, the SBCI, the Minister and the EU sources.
Commenting on the new legislation, Minister Nash said: “This legislation reflects mine and the Government’s on-going commitment to provide better access to finance for Irish SMEs.
“We introduced the Credit Guarantee Act 2012 early in our term to help small businesses to access much needed finance. But, we kept this new law under review, and listened to the needs of our SMEs so that we could see how we could improve it.
“This Bill therefore revisits and updates the 2012 Act to ensure that Irish firms have the full suite of supports necessary to compete and succeed, and that they can operate on a level playing field when compared to international competitors.
“I believe that this reformed and expanded legislation will play a significant role as time goes on, and help deliver the Action Plan for Jobs 2016’s target of 200,000 net additional sustainable jobs by 2020 for the benefit of all,” Minister Nash concluded.
Some 279 companies have availed of the Credit Guarantee Scheme since its inception and more than €45 million has been loaned to these companies right across the country. It is estimated that these loans helped to create 1,142 new jobs and to maintain 907 existing jobs.
Work will now begin on drafting new schemes to implement the new possibilities provided by the legislation.
Note for Editors
The purpose of the SME Credit Guarantee Schemes made under the 2012 Act was to encourage additional lending to SMEs. A review of its operation pointed to the need for reforms designed to ensure that Irish SMEs would have at their disposal the full array of avenues to finance available to their competitors in other countries.
Part 2 of the Bill provides for the extension of the existing credit guarantee schemes as follows:-
1. broadening the definition of lender so as to cover additional financial product providers such as lessors, factors, invoice discounters and other non-bank financiers;
2. changing the definition of loan agreements to include non-credit products such as invoice finance and leasing, and to include overdrafts; and
3. re-balancing the level of risk between the State and the extended finance providers, with the State taking a greater share than previously.
Part 3 contains important new provisions:-
1. enabling State promotional financial institutions (the Strategic Banking Corporation of Ireland or SBCI currently, perhaps also others in the future) to work with the Minister to enhance the provision of credit to SMEs; and
2. empowering the Minister to give counter-guarantees, that will enable the SBCI to unlock matching guarantee facilities from EU sources and thus better share the risk across the banks, the SBCI, the Minister and the EU sources.
It is envisaged that this counter-guarantee would operate in conjunction with optimal leveraging of EU financial instruments in this area, such as the European Programme for Competitiveness of SMEs (COSME); the Horizon 2020 funding earmarked for SMEs; and the European Fund for Strategic Investment administered by the European Investment Bank and European Investment Fund (often referred to as the “Juncker Plan”).