Friday 9 December 2016

State-backed lender will charge Irish SMEs interest of up to 15pc

Published 31/03/2016 | 02:30

The figures show that the current cost of new SME bank lending ranges between 2.79pc and 5.89pc. Photo: Reuters
The figures show that the current cost of new SME bank lending ranges between 2.79pc and 5.89pc. Photo: Reuters

A state-backed debt fund will charge SMEs up to 15pc in interest.

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UK finance firm BMS has launched a €30m debt fund charging interest rates of between 12pc and 15pc for small and medium enterprises (SMEs) in Ireland.

The rates start at more than double the highest average rate being offered on new lending to SMEs by banks, according to the latest figures from the Central Bank.

The figures, published in an economic letter yesterday, show that the current cost of new SME bank lending ranges between 2.79pc and 5.89pc.

BMS Finance Ireland, which is backed by the Ireland Strategic Investment Fund (ISIF), is focused on SMEs with high-growth potential that have failed to get debt from traditional lenders.

BMS director Shane Lanigan will head up the fund, which he said is filling the gap where "the banks aren't prepared to lend".

"You see a lot of alternative funders, crowd-funders for example, in the market up to around €500,000 and then the banks will start playing when they're looking for €5m-plus. "But the €1m to €3m is the most difficult gap in the market for SMEs to try and find finance."

The fund will target all sectors in the market except for property and property development. Debt advanced by the fund is to be used for working capital, contract wins, capital expenditure, acquisitions and management buyouts.

BMS Finance Ireland will provide finance on a senior secured basis without a need for personal guarantees or personal security. Though the interest rates it will charge would more typically apply to riskier, so-called mezzanine loans.

The UK firm said it is focused on entrepreneur and owner-managed businesses, but will also look at venture capital or private equity backed businesses.

Kilkenny native Shane Lanigan said that given the interest rates the firm is charging, suitable businesses need to be growing fast.

BMS has already invested in two companies and is aiming to open an office in Dublin in the next quarter, creating a number of jobs locally. Mr Lanigan said the ISIF, which is controlled by the National Treasury Management Agency, was "very keen" for it to enter the Irish market after watching its performance in the UK.

"They have been very supportive of us, they recognised that there was a gap in the market," he said.

BMS intends to develop a presence in the Irish market following the roll-out of the 10-year fund.

Mr Lanigan said the finance company will be looking to increase its fund size from the initial €30m and increase the range of lending it offers in Ireland.

ISIF director Eugene O'Callaghan said Irish SMEs with limited available collateral struggle to rise term loans in the €1m to €3m range.

"This investment demonstrates the ISIF's ability to attract an experienced manager and co-investors into the Irish market to provide a product that addresses this financing gap," Mr O'Callaghan said.

BMS was set up in 2005 and remains focused on lending to firms as they approach profitability.

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