SMEs Borrowing To Fund Post-Covid Plans
Thousands of sole traders and micro enterprises have availed of SBCI-backed loan schemes to avail of debt finance, writes Gerry Byrne
The Covid crisis busted the myth that small and mediumsized forms don’t want to borrow. SME owners are prepared to borrow, if the price is right, the repayments schedule is medium-term, and personal guarantees can be avoided. That much is clear from the success of the Covid-19 Credit Guarantee Scheme (CCGS), which runs until 30 June 2022. The scheme is available through three banks, six non-bank finance providers and 19 credit unions. Unsecured loans of up to €250,000, at reduced interest rates are available to micro enterprises, SMEs, primary producers and small companies employing under 500 people. Introduced in September 2020, the CCGS has resulted in the most rapid deployment of such a level of lending to businesses in the history of the state. According to enterprise minister Leo Varadkar: “In the aftermath of the last recession, access to credit for viable but vulnerable businesses was a huge problem. Businesses failed that might have survived, jobs were lost and even businesses that were doing well could not get the loans they needed to expand or invest. The picture is very different today, with easier access to credit, lower interest rates, and longer repayment periods for business than would otherwise be the case.” June Butler, chief executive at Strategic Banking Corporation of Ireland (SBCI), notes that as businesses plan for a post-Covid world, they are looking at implementing changes to their product base, supply chains and operating models to address current challenges, and capitalise on growth opportunities. “Lower-cost financing is essential in implementing these changes and enabling Irish businesses to thrive into the future,” says Butler. At the end of January 2022, total CCGS amounted to €570m, spread across 8,340 borrowers. How the scheme works is that 80% of the lender’s risk capital is guaranteed by the SBCI, but the borrower is still on the hook for the full loan amount. There can be some element of guarantee involved, but in the latest data only 3% of borrowings carried a guarantee. Around 2,800 sole traders have borrowed €100m using the scheme, with an average drawdown of €35,000. Micro enterprises have borrowed 55% of the guaranteed funding, with average borrowing of c.€50,000. In the small enterprise category (balance sheet net worth under €10m), 1,720 companies have used the CCGS to borrow an average of €120,000. Micro and small enterprises have also warmed to the Future Growth Loan Scheme (FGLS), which was launched by the SBCI in June 2019. Funding under this scheme is for seven to 10 years, and as of September 2021 borrowers had drawn down €620m using the scheme. Using the FGLS, 1,900 micro enterprises (under 10 staff ) have borrowed an average of €90,000 where the loan size is under €200k. In the €200k to €500k loan size category, 385 micro enterprises have drawn down average loans of c.€300,000. Across the small company cohort, the average