MINISTER FOR Enterprise Batt O’Keeffe is set to seek cabinet approval for a State-backed loan guarantee scheme for small businesses before the Dáil’s summer recess next month.
This would supplement the €12 billion that AIB and Bank of Ireland have pledged to make available to SMEs by the end of 2011 in return for the State aid they have received.
The Minister is finalising a plan aimed at getting credit flowing to small businesses who have been turned down by the main banks.
"We want to ensure the scheme is strategically targeted at acknowledged areas of market failure and that there is an appropriate sharing of risk between borrower, lender and Government," Mr O'Keeffe told The Irish Times.
“We must ensure, too, that the taxpayer’s exposure is capped,” he added.
The Minister declined to detail precisely how the plan will work, or what mechanism will be used to manage the scheme on behalf of the State.
One option might be to have it administered by the National Treasury Management Agency.
Mr O’Keeffe said the scheme would supplement rather than duplicate the measures taken as part of the recapitalisation exercise to alleviate the effects of the credit crunch on small businesses.
This included the establishment of a Credit Review Office.
As part of the recapitalisation, the Government has required that Bank of Ireland and AIB each make €3 billion available to SMEs in both 2010 and 2011.
It is understood that the scheme will target commercially viable small businesses who fail to get credit because of insufficient collateral despite having demonstrated an ability to repay.
“I am particularly anxious that viable businesses in new high-growth sectors and markets have access to proper credit facilities so that they can generate jobs and compete on a level playing field with firms in other countries that have access to similar loan guarantee schemes,” the Minister said.
Loan guarantee schemes are common in many other countries with more than 2,000 operating in about 100 different states.
Ireland is one of the few member states in the European Union that does not have some form of loan guarantee scheme in place.
“Getting credit flowing to for small businesses is vital to our economic recovery,” Mr O’Keeffe said.
“The banks now know my strong views on the importance of working capital lending to small businesses.”
In April, the Small Firms’ Association warned that one in five small businesses continues to experience problems accessing working capital and said this potentially put 160,000 jobs at risk.
The association called for the Government to introduce a State-backed loan guarantee scheme as a matter of priority.
The Minister is also planning to bring forward proposals for a major revamp plan of the country’s 35 county enterprise boards before the Dáil’s summer break, which is scheduled to start on July 9th.
