Dáil Éireann debate -
Wednesday, 16 Nov 2022

Vol. 1029 No. 4

Credit Guarantee (Amendment) Bill 2022: Committee and Remaining Stages

Sections 1 to 4, inclusive, agreed to.

SECTION 5

Deputy Louise O'Reilly

I move amendment No. 1:

In page 4, line 13, to delete “6 years” and substitute “7 years”.

This is a technical amendment that resembles one I submitted as part of the Covid-19-related Credit Guarantee (Amendment) Act. It is designed to lengthen the timeframe in which a guarantee given pursuant to this agreement will increase from six years from the date of the agreement to seven.

In 2013, the Department commissioned a review of the temporary partial credit guarantee scheme, which was carried out by First Choice Financial Services and AJS Financial Advice Limited. They were appointed by the Department to specifically review the scheme. The review focused on giving the scheme the best possible chance of success. In the recommendations submitted, the steering committee, appointed by the then Department of Jobs, Enterprise and Innovation, stated that the three-year term was too short because most loans are for a minimum of five to seven years. It made a key recommendation to extend the term of the guarantee to seven years. This was to allow for guarantees to be extended and thereby loans also. This Bill seeks to set the terms for this scheme at six years. I have submitted this amendment in part to understand why one of the key recommendations of the report commissioned by the Department has still not been taken on board.

Minister of State at the Department of Enterprise, Trade and Employment (Deputy Damien English)

I confirm that we will be opposing the amendment. I can see the argument for wanting a longer period, and it is not that we disagree. The state aid basis for the Ukraine credit guarantee scheme is the European Commission's state aid temporary crisis scheme. The relevant section of the framework puts the maximum term of loan at six years. My Department is required to notify the Commission of the terms of the scheme, and this is already under way. By keeping within the standard terms of the framework as suggested or required by the EU, we can expedite the scheme as quickly as possible. Moving outside the standard terms would mean less opportunity for lower interest rates and a longer timeframe for approval.

This scheme is focused on short- to medium-term lending. My Department has another loan scheme in development, the growth and sustainable loan scheme, which was approved by Government last week, as I mentioned on the floor of the House. That loan will cater for lending to SMEs for longer terms of seven to ten years. That will be another offering that may deliver what the Deputy is seeking.

The Ukraine credit guarantee scheme, UCGS, will focus on assisting business in the current crisis by providing loans to cover input costs for the next 12 to 24 months by spreading the costs over six years. I recognise why the Deputy has tabled her amendment but if we accept that amendment we are into an unknown timeframe of when we could have this completed and when we could deliver the product. We are anxious to get this up and running as quickly as we possibly can. We believe that if we can get it through the Houses this week, we should be in position to have a loan offering under the credit guarantee scheme before Christmas or certainly very soon after. I ask for the Deputy's co-operation. For this one we will stick with six years but the next loan product will be longer.

Deputy Louise O'Reilly

I thank the Minister of State. That explanation is very helpful because bypassing the recommendations on the temporary partial credit guarantee scheme seemed to be out of step with where I thought the Government might be. While I am not trying to put words in the Minister of State's mouth, he is basically saying this is to comply with existing rules. I know the Minister of State is not suggesting it, but just for the avoidance of any doubt this amendment was not tabled in an effort to frustrate or elongate the process. As indicated at the start of this, we on this side of the House are very willing to work with the Government to get this through. As the Minister of State stated, the ambition is that this money will be with people before Christmas. The intention was not to delay or frustrate the process but merely to get an answer on that. On that basis I am satisfied with the explanation.

Deputy Damien English

I again thank the Deputy for her co-operation. As I said at the start, I recognise the support of the House to try to fast-track this legislation.

Amendment, by leave, withdrawn.

Deputy Louise O'Reilly

I move amendment No. 2:

In page 4, between lines 30 and 31, to insert the following:

“(5) The Minister shall, ensure that monies loaned in accordance with the Ukraine credit guarantee scheme shall—

(a) be loaned interest free with zero repayments for the first 12 months of the loan, and

(b) cap interest rates on such loans at 2.5 per cent.”.”.

The interest rates charged on the loans are normal business loan rates from the respective banks with an additional charge which comes because of the Government guarantee. The Department of Enterprise, Trade and Employment, funding the scheme through the guarantee, plays no role in the application or decision-making process which is fully delegated to participating lenders. As a result, the loans are issued, operated and overseen by the respective banks. In other words, the banks administer the scheme, they make decisions on whether to issue loans based on their own for-profit criteria for loan insurance and not the criteria of the Department.

We are debating this Bill today because we need a scheme that specifically helps businesses during the current inflation crisis and the crisis caused by the Russian invasion of Ukraine. While the Bill tries to address this, we are submitting this amendment to further strengthen the loan scheme. We have called for interest rates to be capped at 2.5% instead of 2.75% as was the case with the Covid-19 credit guarantee scheme. We also believe it would be a major incentive if the loans were interest free with zero repayments for the first 12 months. As the Minister of State knows, these companies are only now coming out of a very tumultuous and difficult period of trading. Having zero repayments for the first 12 months would incentivise people to take them up. People are understandably very careful and very worried about taking on additional debt. Some of these people are only just getting out from the debt they incurred following the 2008 financial collapse.

As we know, it was standard practice for many of the Covid-19 credit guarantee loan schemes across the European Union to have 12 months with zero interest and no repayments. It would make a significant difference to this scheme if we could defer the interest rates for 12 months and it would go a long way towards assisting business. It would also recognise that some people will naturally be very cautious about taking on debt or additional debt as it will be for many of them.

Deputy Damien English

I again thank the Deputy for the amendment which again we cannot take on board. I hate saying we will oppose it when we are explaining why we cannot take it on board under the existing rules. It is a formality that we have to oppose it, I am afraid.

We oppose this amendment. The aforementioned notification of the scheme to the European Commission is based on a state-guaranteed loan scheme. Interest-free coverage is a different type of scheme under the framework and not permitted under this scheme. It would require a different premium and would have more onerous state aid implications for the businesses. As a premium is required to be paid quarterly by the business to cover the guarantee by the State, if no payments were made over 12 months, the guarantee would not stand. This would result in the end user having worse terms and conditions, including collateral and personal guarantee requirements, and interest rates. We believe that having the scheme will lead to greater availability of credit and loans because they are divested on behalf of the banks. The requirement to have collateral up to a certain level would be eliminated by having this scheme as well as reducing interest rates. It is important to have this scheme and to work within the existing rules.

The Credit Guarantee Act has facilitated a number of schemes, including the standard credit guarantee scheme, the Covid-19 scheme and now the Ukraine credit guarantee scheme. None of these credit guarantee schemes have utilised a cap in the interest rate. This is because the bilateral agreement is decided on an individual basis between the Minister for Enterprise, Trade and Employment and the finance provider. The legislation does not set out a cap, but this allows for a level of flexibility. The scheme and the temporary crisis framework demand that as a result of the guarantee the interest rate is demonstrably reduced from market rates. I addressed that on Second Stage. There will be a reduction on market rates. That is required to be in the scheme and that has proven to be the case on the schemes in the various iterations previously used on this legislation as well. This will be evident to the business in the loan documentation. We monitor and track that. The State is involved in this loan process and we will certainly keep an eye on that.

Larger banks tend to provide standard term loans with a considerable reduction in interest rate. However, smaller non-banks, including credit unions, would not be able to meet the proposed cap. They will provide a reduction as required but could not go to the level proposed. I want to see a strong level of competition in the range of finance providers participating in the scheme and not having a cap will facilitate this competition because the cap would exclude certain providers. Competition is important because these smaller lenders provide different types of lending, including asset-backed financing such as hire-purchase and discount invoicing. In addition, they might be the lender of choice for some of the businesses we intend to help here. This competition is important for the market but more so for the businesses as they can choose the lender that suits them.

Pre-eligibility will now be assessed by the Strategic Banking Corporation of Ireland. Following approval, they can go to any participating lender. We hope to have a number of lenders involved in the scheme. The initial offering will probably be through one or two to get it out quickly before Christmas and then it will be open to all the existing people using this scheme and others to come forward and bid for some quota here as well. In the interest of competition, it is important not to have a cap.

Deputy Louise O'Reilly

The Minister of State is saying that the imposition of a cap would exclude the credit unions. While he might not have it here, does he have information on how many loans have been issued by the credit unions under the other schemes? Are they intrinsically involved? My understanding was it was mostly the main banks. I appreciate the point the Minister of State has made. Notwithstanding that I intend to press the amendment.

The banks will do a lot of heavy lifting on this. The purpose of the scheme is to ensure that it works. The Department cannot set the terms beyond what we are discussing here today and it will be back over to the banks after this. I share the same ambition as the Minister of State. I want to see the scheme work and help those businesses that are viable but vulnerable and ensure that not just businesses but the jobs can be saved. For that reason, I will press the amendment.

Deputy Damien English

The amendment is two-pronged. It seeks to have 12 months interest free, which we cannot do as an interest-free payment is not permitted under the rules. It also seeks to apply a cap. I do not have the breakdown on the number of lenders that participated in schemes previously. I can certainly get that for the Deputy. The intention of having these credit guarantees is to do two things. It is to make credit available quicker and cheaper with less collateral required by the businesses which are under immense pressure. They can spread the cost, which is causing difficulty at the moment, over the next six years to give them a chance of being able to survive. It is important to have that scheme up and running as quickly as we possibly can. It is guaranteed to be at a reduced rate compared with the products available today without the scheme. That is guaranteed in the legislation, as it must be with the framework of the scheme.

We want to attract the maximum number of lenders into this area. We are trying to increase access to finance for our SME community. We believe there is an opportunity under these schemes to attract lenders, such as credit unions, more into the space of making credit available to businesses as well. The 2.5% interest rate cap will probably rule out many potential lenders coming into the scheme. We cannot force the scheme. We will be asking lenders to avail of the scheme and if we put a cap on this that is probably too low in real terms, even though we always like to make money available to businesses as cheaply as we possibly can, we must also be realistic that this would not attract in the lenders. While we can guarantee that there must be a reduction to reflect the State's involvement beyond the guarantee, we need to be realistic that a 2.5% cap would probably prevent some of them coming into the scheme. The credit guarantee has worked in the past and delivered good results.

More than 7,500 people benefited from the last scheme. When you sit down with the business community, which we do on a daily basis through all the various forums, we find the interest rate is not the bit they are concerned with, but it is access to the money and the number of people in the system who are making the money available. That is what we trying to do here. While we of course want to keep the costs as low as we can, and we will demand that, that is not the biggest issue. They say to us that having a number of lenders that are in a position to lend this money is important to them, as well as quicker access with de-risk. By having the straight guarantee, the banks and lenders will change the profile of the customer they try to lend to, which is what we want.

I also want to flag the role of Microfinance Ireland, which also has products available to smaller companies. This is a good offering and there is an opportunity in some of those schemes to have an interest-free period. This a different scheme and it is targeted at different businesses, but it is worth mentioning and is another part of the offering. This is to strengthen our toolkit to respond to the needs of business and that is why we are trying to get it through the Houses.

Amendment put and declared lost.

Section 5 agreed to.

Sections 6 to 8, inclusive, agreed to.

Title agreed to.

Bill reported without amendment and received for final consideration.

Question proposed: "That the Bill do now pass."

Minister of State at the Department of Enterprise, Trade and Employment (Deputy Damien English)

I thank the House for facilitating the Bill's speedy passage.

Question put and agreed to.

Acting Chairman (Deputy Kathleen Funchion)

The Bill will be sent to the Seanad.