Small firms shun Govt’s €2bn Covid guarantee scheme

Centrepiece business support is lending just €9.2m a week

Lockdowns have closed businesses like those on South Anne Street in Dublin. Photo: Gareth Chaney/Collins

Jon Ihle

February 25 2021 02:30 AM

The €2bn Covid-19 Credit Guarantee Scheme (CGS) launched as a central pillar of the Government’s July Stimulus has distributed less than 10pc of its available funding halfway through its life-span, according to statistics compiled by the Department of Enterprise.

The programme, which is due to expire on June 30, offers an 80pc State guarantee to banks on loans to SMEs and was part of the Government’s Covid response programme to support jobs and businesses.

Despite the generous terms, take-up has been very poor since the scheme launched in September, with just €165m borrowed since then.

At that average run rate of just €9.2m in new lending per week, the Government will have guaranteed less than €350m by the time the scheme expires, leaving more than 80pc of its capacity unused despite businesses struggles with cash flow.

The programme, originally intended to run until the end of 2020, has already been extended once.

Any further extension beyond the June 30 deadline would require permission in line with the European Commission’s Temporary Framework for State Aid.

That looks like it could be an option as the European Commission has already circulated a draft proposal to member states to continue the framework for another six months.

But it would not address the lack of demand from businesses afraid of taking on debt.

The Department of Enterprise’s weekly performance report on the scheme suggests very lukewarm demand for the finance.

In 18 weeks of operation, the CGS has backed more than €10m in a week just five times. Most weeks fewer than 200 businesses receive approval for CGS loans. The first week of the year saw a peak of €20m, but that was an anomaly. The most recent three weeks have been below average.

Sources said the relatively short 5.5-year term for CGS loans and higher interest rates, topped up with a small premium to the State, could be dampening interest in the scheme among businesses.

By contrast, the Future Growth Loan Scheme (FGLS) aimed at large firms has disbursed more than €645m of the €800m it has available.

The FGLS offers higher loan amounts (up to €3m instead of just €1m), capped interest rates and a wider range of allowable uses then the CGS.

Firms of all sizes are also making use of the option to warehouse tax owed to Revenue to maintain cashflow during pandemic restrictions.