Small Firms Buoyed By State-Backed Loans
Schemes offering low-interest credit have bolstered the resilience of many businesseses. Robert O’Brien looks at the two new schemes currently in operation
The past year has seen a marked slowdown in Ireland’s economy, though it is coming off a high base. After the Covid lockdowns in 2020, the economy rebounded very strongly in the following two years. Modified Domestic Demand (MDD) — an economic measure that reflects activity in Ireland’s domestic economy — increased by 5.8% in 2021 and 9.5% in 2022. For 2023 the expected MDD growth outcome is 2.2%, with the same again forecast for 2024.
This ongoing growth is reflected in the relatively low level of business insolvencies, which for 2023 are tracking below the 2019 pre-Covid level. Tax debt warehousing is an important reason for this company resilience, and so too are the various state-backed loan schemes that made borrowing easier for sole traders, small firms and larger SMEs.
These loan schemes span the Future
(launched
Growth Loan Scheme Covid-19 Credit Guarantee Scheme Brexit Impact Loan
in 2019), the
(launched in 2020), and the
Scheme (launched in 2021). Between them these three schemes facilitated €1,760m in loans and other types of finance to 15,200 enterprises.
Digging into the data shows these schemes reach into all sectors of the economy. For instance, with the Credit Guarantee Scheme 3,200 of the borrowers were sole traders, many of them farmers, with average borrowing of €36,000. Across the three schemes, 11,570 of the borrowers were micro enterprises, defined as having under ten people employed or balance sheet value less than €2m. The average loan or finance amount drawn down by these micro firms was €76,000.
Small firms like these state-backed schemes because there is no personal guarantee required and the interest rates are low. For over 90% of the Credit Guarantee Scheme borrowers, the interest rate is 2.5% to 3.0%.
Two new state-backed lending schemes are currently in operation. The
Ukraine Credit Guarantee Scheme
has €1.2bn to disburse while the more recent
Growth and Sustainability Loan Scheme
(GSLS) is making €500m available to on-lenders.
With the Ukraine scheme, borrowers have to declare costs have increased by a minimum of 10% on their 2020 figures, and that the loan is being sought specifically as a result of difficulties being experienced due to the crisis.
The GSLS covers unsecured loans of €25,000 upwards for terms of up to ten years for borrowers investing in the growth and resilience of their business, and/or contributing to climate action and environmental sustainability.
The scheme is targeting a minimum of 30% of the lending volume for environmental sustainability purposes, with the aim of encouraging SMEs to take positive actions in support of the climate change agenda. Green loans will also benefit from an additional interest rate discount.
Both schemes are organised by Strategic Banking Corporation of Ireland. Bank of Ireland, the first GSLS on-lender, has prioritised environmental sustainability loan applications, with loans for general long-term investment under the second phase being processed from December 2023.
The GSLS is open for a broad range of investments that can qualify for eligibility as investment in green/ sustainable measures. These include: Building upgrades and renovations Roof and wall insulation Replacement windows Replacement of existing lighting with energy efficient LEDs Electric vehicles and, electric vehicle charging points Manufacturing of energy-efficient equipment Manufacturing of renewable energy equipment
Minimum tillage equipment Tractor and harvester replacement Agriculture building renovation or upgrade.