Business Irish

Tuesday 21 November 2017

Credit review chief 'sceptical' about loan guarantee scheme

Peter Flanagan

Peter Flanagan

ONE of the key players in the ongoing dispute over the availability of credit to small businesses has said that he does not favour a loan guarantee scheme.

John Trethowan, who heads up the Credit Review Office, said he was "sceptical" about how effective a loan guarantee scheme would be and warned it was being portrayed as a cure for all small firms' problems when this was not the case.

"If a loan guarantee scheme came in tomorrow, then each application for the guarantee would have to be processed on an individual basis and so would effectively replicate what the banks are already doing," he said.

"An application for the guarantee would go through or fail based on the viability of every business. If a business is not viable, then the guarantee is not going to save them, if the business is viable then the guarantee should not be required," he added.

"While the banks have been concerned about getting security on the loans given their circumstances, a lack of sufficient security -- that is a lack of liquid security -- has not been an obstacle for a number of businesses."

Failure

Mr Trethowan was speaking only hours after Enterprise, Trade and Innovation Minister Batt O'Keeffe said that the Government had begun work on a loan guarantee scheme for small and medium enterprises (SMEs).

Speaking at the Small Firms Association's (SFA) annual conference, which was held in Dublin yesterday and where Mr Trethowan also spoke, the minister said that the scheme would target market failure in small business lending when viable businesses failed to get credit "because of insufficient collateral and information deficits despite having demonstrated an ability to repay".

"Officials in my department and the Department of Finance are looking at options for a loan guarantee scheme," said the minister. "Detailed discussions on how this can be achieved are under way and I hope they can be finalised very shortly.

"Over 2,000 loan guarantee schemes operate in almost 100 countries. Ireland is one of the few nations in European Union that does not have some form of loan guarantee scheme. Getting credit flowing to small businesses is vital to our economic recovery," said Mr O'Keeffe.

The director of the SFA, Avine McNally, welcomed the plans for the guarantee and urged that it be implemented "sooner rather than later".

SFA chairman, Dr Aidan Boyle, had earlier repeated his call on the Government to introduce a guarantee.

"Unless the lending risk to the banks is reduced by the introduction of a loan guarantee scheme, many small businesses will not survive. We, small business, are the life blood of this country and it is time this was recognised."

Irish Independent

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