The COVID-19 Credit Guarantee Scheme (CCGS) has €2 billion in lending available for Irish businesses and is the largest guarantee scheme in the history of the State. Its function is to add certainty to businesses that funding is available for working capital and investment purposes. Loans of up to €1 million are available for up to five and a half years at reduced interest rates. Loans under €250,000 do not require collateral or personal guarantees. The Scheme is available to SMEs, small Mid-Caps (up to 499 employees) and primary producers and will run until 30 June 2021 in accordance with the European Commission’s State Aid Temporary Framework.
Finance providers under the scheme include commercial banks, credit unions and other non-bank lenders. Loan facilities are made available through finance providers utilising their own funds at interest rates below the market rate. In such a scheme there is no upfront cost to the state in the allocations to finance providers.
The guarantee schemes operating under the Credit Guarantee Act, which includes the CCGS, are based on contingent liability. What this means is that there is no cost to the State unless a participating enterprise is unable to pay back the loan for more than 90 days, whereupon the loan enters a default stage and the finance provider can call on the guarantee for 80 percent of the outstanding balance. These demands will be called on through the operator of the scheme, the Strategic Banking Corporation of Ireland (SBCI).
As per State Aid rules set by the European Commission, a premium must be paid to the Irish State which will alleviate some of the costs. Premium rates range from 0.15% for a one-year term loan to 0.68% for a term loan of 5 and a half years for SMEs and primary producers. Rates for small mid-caps range from 0.3% for a one-year term loan to 1.55% for a term loan of 5 and a half years.
Premiums received will be used to fund the payment of claims under the Scheme. It is expected that the level of claims under the Scheme will exceed premiums collected. The issue of profit or gain is therefore not expected to arise. The SBCI operates the Scheme on behalf of the Department and can recoup costs incurred from the Department.