On Monday (7 September), applications opened for the Government’s €2bn Covid-19 Credit Guarantee Scheme for SMEs.
First announced back in July, the scheme makes low-cost loans available to businesses impacted by the pandemic. It marks the largest credit guarantee scheme in the history of the State, providing a State guarantee for 80pc of borrowings.
The Credit Guarantee Scheme makes a wide range of products available to SMEs, including overdrafts, term loans and working capital. To qualify, SMEs will have to declare an adverse impact of at least 15pc of actual or projected turnover or profit due to the impact of Covid-19.
As with previous credit guarantee schemes, the scheme will be operated by the Strategic Banking Corporation of Ireland and will be available through three banks: AIB, Bank of Ireland and Ulster Bank.
Loans of between €10,000 and €1m will be available under the scheme, which will run until the end of the year.
Dealing with the impact of Covid-19
The scheme is initially targeting the farming and fishing sectors, to “ensure that the disruptions caused by the pandemic do not undermine the ongoing viability of food production,” according to Minister for Agriculture and the Marine Charlie McConalogue, TD.
The scheme, which has been described by Tánaiste and Minister for Business Leo Varadkar as an “unprecedented measure” to provide financing to SMEs will initially focus on term loans. The introduction of overdraft facilities and working capital lending, which were announced in July, are expected to be announced later in the year.
Businesses that are eligible for the loans will be able to take out term loans that will be repayable over a maximum of six years. The rate of interest will vary according to the terms of the loan, but according to the Government, the interest will be lower than normal market rates.
In order to put the scheme in place, the Government has to make legislative changes to the existing Credit Guarantee Act 2012, which included the removal of the portfolio cap and an increase to the size of the scheme to take account of the needs of businesses during the pandemic.
Nick Ashmore, CEO of the Strategic Banking Corporation of Ireland, said: “In bringing the Covid-19 Credit Guarantee Scheme to market the Government has provided micro businesses, SMEs and small mid-caps with the opportunity to access lower-cost funding during this challenging period.
“The expansion of the scheme to include primary producers and the provision of unsecured loans of up to €250,000 has significantly expanded the scope and impact of the scheme.”
According to RTÉ, the Credit Guarantee Scheme has been criticised by business leaders who question whether SMEs have an appetite for debt they may not be in a position to pay back due to the unprecedented circumstances caused by the pandemic.