The SBCI Covid-19 Working Capital Scheme [Covid-19 WCS] is offered by my Department in cooperation with the Department of Agriculture, Food and the Marine, and is supported by a counter-guarantee from the European Investment Fund [EIF] through its InnovFin SME Guarantee facility. This counter guarantee has enabled €15 million in Exchequer funding to be leveraged to provide €200 million in lending through this Scheme. This is reflective of an effort to achieve the widest reach with Exchequer funding to support businesses as they seek to respond the impacts of Covid-19 and why loan guarantee structures are a key response to the liquidity crisis.
The scheme is available to eligible businesses that have been negatively affected by impacts arising from the outbreak of Covid-19 to enable those businesses to innovate, change or adapt in response to the current business environment.
The scheme is operated by the SBCI and is offered through participating finance providers. This allows the Government to leverage existing lending infrastructure, providing an efficient mechanism for making competitive lending products available to Covid-19-impacted businesses, and there are significant advantages to loan schemes run through the participating finance providers.
The interest rate of 4% under the Covid-19 WCS represents a savings when compared with other similar lending available in the market, while the availability of loans of under €500,000 unsecured ensures that these schemes are more accessible to businesses.
However, the operation of loan schemes of this type through these financial providers also means that there is less scope to bring the interest rates down further, as some interest must be charged by the lenders to cover overheads and capital costs if they are to continue to work with Government.
The level of capital held by Irish banks against SME loans relates to the high level of non-performing loans (NPLs) in the Irish Banking System during the financial crisis. Notwithstanding improvements in the period since then, there is still a continuing high stock of NPLs in the Irish Banking System. The resulting high levels of required capital means that banks in Ireland charge a higher interest rates than is found on average in the EU so as to be able to generate an appropriate return on equity.
Further to this, the Covid-19 WCS operates under the de minimis state aid regulations. This limits the overall volume of state funding available to individual businesses in any given three-year period. Any adjustment to the interest rate under the scheme would affect the consideration of the level of aid being provided to applicant businesses. This would impact the overall volume of funding available to applicant businesses and could impact their eligibility for other schemes.
Uptake of the scheme to date has been strong and work is under way on a significant expansion to make additional lending available under the scheme.
