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Guaranteed loans bill to become law in summer

State expected to back an extra €150m per year for small firms

THE much vaunted loan guarantee scheme for small firms will come into law by June at the latest, after the Government publishes the bill today.

It is hoped the Credit Guarantee Bill 2012 will guarantee up to €150m of additional lending per annum to small and medium enterprises (SMEs).

The bill will also set in stone the lending targets set for the pillar banks, AIB and Bank of Ireland.

The scheme, which small business trade groups have been calling for since the early days of the downturn, will see the Government back loans to business for a maximum period of three years.

The state estimates the scheme will cost some €6.8m per year for every €150m guaranteed.

While the initial limit has been set at €150m a year, that figure is believed to be flexible and the Government has emphasised the scheme will be "demand led".

It is intended to protect commercially viable businesses where the business has insufficient collateral and where a business operates in sectors unfamiliar to the banks.

The guarantee will provide a 75pc state guarantee to banks against losses on qualifying loans to firms "with growth and job-creation potential" and will be operated by Maynooth-based financial firm Capita Asset Services (CAS).

SMEs will not apply directly to the State for access to the guarantee.

Initially, the banks will open their lending portfolio to the State and ask for a guarantee on specific loans.

Capita will act for the State and assess those loans before making a final decision on whether to use the guarantee against them or not.

The bill, which will be announced by enterprise minister Richard Bruton, is expected to be in place by the end of the second quarter this year.

Pillar

The department did not reveal if the scheme would govern all banks in the market, or just the pillar banks.

It is believed that is still being worked out.

The exact conditions the loan would need to fulfill to be guaranteed, such as the minimum or maximum amount requested, were not revealed by the department, citing commercial concerns.

The scheme is scheduled to only last three years. It will expire then regardless of the length of the loans in question, while borrowers who end up being guaranteed will pay a 2pc premium charge to the minister.

Every €150m of additional lending is believed to benefit over 1,800 businesses in the long run with a net gain to the exchequer of €25m.

Irish Independent