Credit Guarantee Scheme - June 2012

Author:Ms Claire Vaughan
Profession:Dillon Eustace

For the past number of years, Irish small and medium-sized businesses ("SME's") have been lobbying the Government for the introduction of some meaningful initiative to assist cash starved businesses gain access to bank credit. Earlier this year the Government announced (as part of its Action Plan for Jobs 2012 programme) a planned range of new supports for struggling SMEs, including the establishment of a credit guarantee scheme. The Credit Guarantee Bill 2012, published in April of this year, is the draft legal embodiment of the Government's proposals for such a scheme.

Temporary Partial Credit Guarantee Scheme

The Bill provides for the establishment of what the Government refers to as a targeted Temporary Partial Credit Guarantee Scheme, the central element of which is a 75% government guarantee on loans granted by participating lenders to qualifying SMEs.

The Bill empowers the Minister for Jobs, Enterprise and Innovation to enter into agreements with 'participating lenders' under which the Minister can guarantee the repayment to that lender of up to 75% of the principal moneys loaned to a 'participating borrower' under a 'loan agreement'.

'Participating borrower' is a defined term in the Bill and falling within its ambit are SMEs employing less than 250 persons and with an annual turnover of not greater than €50million or with an annual balance sheet of not greater than €43million (criteria which are in line with the European Commission definition of an SME).

Importantly, currently excluded from the definition of a 'loan agreement' are overdraft facilities and arrangements for the refinancing of existing debts. The Dáil Committee Amendments to the Bill published at the beginning of June do recommend the inclusion of overdraft facilities (and loans converted from overdrafts) within the ambit of the Scheme, however it is yet to be seen if these recommendations will be taken on board.

Furthermore, it is proposed that primary production in agriculture, horticulture and fisheries will be excluded from the scope of the Scheme, as will property-related activities.

Participating borrowers who enter into loan agreements guaranteed under the Scheme will be subject to a 2% annual premium on the outstanding balance of the loan, payable to the Minister.

The Minister has appointed Capita Assets Services Ltd., a Maynooth based company (and part of the Capital Plc group) to administer the Scheme.

Protections for the State

Guarantees under the Scheme will be given...

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