Saturday 24 February 2018

SME funding: Noonan looks to Paris as over €500m in cheaper credit made available

Finance Minister Michael Noonan
Finance Minister Michael Noonan
Mark Fielding
Ian Talbot
AJ Noonan SFA chairman
Frank Gleeson Chairman of Retail Ireland
Fergal O'Brien.
Colm Kelpie

Colm Kelpie

THE GOVERNMENT is in preliminary talks with France's development bank to secure an extra source of potential cheap credit for Irish SMEs.

The news comes as the Department of Finance unveiled details of the new state-backed Strategic Banking Corporation of Ireland (SBCI) which will lend to small and medium businesses under favourable terms.

More than half-a-billion euro will be initially available with lending expected to start by the end of the year.

Under the scheme, existing main street banks will borrow from the SBCI and lend to SMEs. The banks will assess the risk of lending and will continue to hold that risk. But the lenders must demonstrate that the lower cost of sourcing the funds is passed on to SMEs.


This is needed in order to avoid a breach of European state-aid rules.

SBCI will have a lower cost of funding, providing a potentially cheaper option for businesses to access financing.

Money will initially come from German development bank KfW, the Ireland Strategic Investment Fund (ISIF) and the European Investment Bank (EIB).

But preliminary discussions are also under way with Banque publique d'investissement to secure more funding. There are also plans to engage with development banks in other member states.

Finance Minister Michael Noonan said firms will be able to access loans of greater duration, with enhanced terms and potentially at a lower cost.

"This will promote greater competition in the SME lending sector, will drive economic growth and job creation in this key sector of our economy," Mr Noonan said.


EIB said it expects the new company will make a "valuable contribution" to improving access to finance for small businesses.

It is expected that the ISIF will contribute about 30pc of the funds, along with €10m of equity capital.

The amount of money to be put in from KfW and EIB has yet to be finalised, but EIB normally finances between 30pc and 50pc of a project.

The announcement of KfW's involvement was made in the Dail last November by Taoiseach Enda Kenny.

Mr Kenny yesterday welcomed the SBCI's establishment and said it was a result of the agreement reached between himself and German Chancellor Angela Merkel last year.

"Using funds from the German promotional bank KfW, the European Investment Bank and the Irish Strategic Investment Fund, the first phase will make over €500m available for small Irish business," the Taoiseach said.

The Verdict:

* Mark Fielding, chief executive, Irish Small and Medium Enterprises Association: "While we welcome this long-awaited initiative, the fear among credit-squeezed SMEs is that the bailed-out banks will revert to form and divert these loan funds to "safer" large businesses."

* Chambers Ireland chief executive Ian Talbot: "The vague timeline is disappointing. There is an urgent need for this to be put in place and we are calling for a deadline of September 2014 to be set."

* IBEC economist Fergal O'Brien: "The economy is recovering and businesses are more confident about investing, but many challenges remain. The new bank can help make a real difference and, if properly structured, we would expect to see considerable interest from the business community. A €500m fund looks like a good start, but it may need to be increased as demand for investment finance recovers."

* Small Firms Association chairman AJ Noonan: "Finance remains an acute problem and while this is a step in the right direction, it does not go far enough. €500m is a tiny fraction of the current €27bn business banking market."

* Retail Ireland chairman Frank Gleeson: "The current banking market is failing companies – lending criteria is too restrictive and interest rates are too high. The new state-backed bank should help address this problem. It is not a solution, but it is a very positive development."

Irish Independent

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