A PROPOSAL that would see the State guarantee funds lent by banks to small businesses will come before the Cabinet subcommittee on economic renewal in the next couple of weeks.

Yesterday Tánaiste Mary Coughlan said the Department of Enterprise, Trade and Employment was examining the feasibility of implementing a State-guaranteed funding scheme for small- and medium-sized enterprises.

A spokesman for the Minister said last night the department was looking at Fogape, a credit guarantee scheme in place in Chile, as a potential model for the system. About 20 countries across Europe have similar state-guarantee systems in place.

The spokesman could not confirm whether all financial institutions operating in Ireland, or only those covered by the Government guarantee, would be included in the proposed scheme, as the details were still being worked out. He said that only feasible businesses in need of working capital would be eligible.

The announcement of the initiative was broadly welcomed by groups representing the SME sector.

David Fitzsimons, chief executive of Retail Excellence Ireland, an industry body representing some 600 retail firms, said such an initiative would generate a “very positive” response from retailers. “This could well be the boost they need in order to get them back on their feet. Credit continues to be tight but a Government decision to underwrite funds could make sure that working capital gets to businesses that need it.”

Fine Gael’s deputy finance spokesman Kieran O’Donnell said the announcement of a possible loan guarantee scheme indicated a realisation by the Government that Nama “will not work”.

“The  Tánaiste’s plans  are  an admission that Nama will not get credit flowing again  to small businesses ... small businesses are still being starved of credit, in spite of the billions of taxpayers’ money poured into the banks and the creation of Nama,” he said.