Radical new plan will allow credit-starved firms to bypass banks
Pillar banks' practices put us at risk of 'losing next Google'
The country is at risk of losing "the next Google" because of the flawed culture that still exists within the pillar banks, the new Minister for Business and Employment has warned.
In a stinging criticism of our main financial institutions, Labour TD Ged Nash said he believes businesses are being inhibited from taking on new staff because of their inability to secure potentially cheap lines of credit.
The Sunday Independent can reveal that officials in the Department of Enterprise are drawing up radical new plans which will allow many businesses to bypass banks in order to secure a loan.
Under the proposals, spearheaded by the new Super Junior Minister, viable businesses will be handed loans in a matter of weeks from the Government's €5bn lending powerhouse, the Strategic Banking Corporation of Ireland (SBCI).
In his first interview since his appointment to Cabinet, Mr Nash said he believes the culture within banks is stifling the growth of Small and Medium businesses (SMEs).
"I have a fear in terms of how some of the banks operate that we are at risk of losing the next Google," Mr Nash told the Sunday Independent.
"There may not be the capacity in some of the financial institutions to identify viable and potentially very successful businesses."
The remarks by the new business minister will be viewed as significant given that Labour now has sizeable sway in the area of enterprise as a result of the recent Cabinet reshuffle.
The Louth TD is seen a rising star in the party and has already called for a shift towards a "wage-led recovery" despite deep concern in Fine Gael about the impact pay hikes will have on job creation.
Mr Nash confirmed he has directed his officials in the Department of Jobs, Enterprise and Innovation to draw up "game-changing" new plans which will effectively allow businesses to bypass banks in order to secure a loan.
"This could be a game changer for SMEs, a real game changer. It's been extremely frustrating for them over the years," Mr Nash said.
The proposals, which are still at an early phase, are designed to make it much easier for entrepreneurs to secure credit from the Government's newly established SBCI.
The initial €500m facility, which is part-financed by Germany's KfW bank, is due to begin approving loans later this year.
But Mr Nash wants to develop a specific set of conditions which could see loans handed out just weeks after the application stage.
Significantly, the minister with responsibility for small businesses is pledging proposals that will allow businesses to bypass pillar banks, in some instances, in order to obtain a loan.
Without naming a specific institution, Mr Nash expressed deep concern about the banks' lending practices. The minister suggested that there is a risk that banks may become overly focused on the upturn in the property market.
"They have different ways for accounting for monies that they lend. But the reality is I'm determined to crack this nut for viable existing businesses and new businesses as well," he said.
"I think they've lost a lot of key staff over the last number of years out of necessity. It's important we look at the culture of the banks as well. We don't want a banking system that, like we've had in the past, is overly focussed on property.
"Property and construction obviously are key and very significant. But we want to make sure that our pillar banks can identify good business opportunities for them and in the new economy," he added.
Mr Nash has directed his officials to eradicate the prospect of any red tape which, he says, is inhibiting businesses from obtaining credit from the mainstream financial institutions.
The plans will focus on the decision-making process behind each loan application and will aim to ensure that businesses can access create in a "timely and effective fashion".
"There are viable businesses who are finding it consistently difficult to access funds from the pillar banks. That's why we need to be very imaginative and very innovative about how we use the SIB money, how we direct it to viable SMEs," he said,
"We need to be much more vigorous in terms of supporting our SMEs. That's my job and one of the things I'm examining at the moment is how we appropriately channel Strategic Investment Banking Corporation monies to SMEs that's timely, that's effective and doesn't involve an inordinate amount of red tape."
The publicly owned bank - which will initially lend from a fund of €500m - is based on similar models in Germany and France.
It will be initially financed by the German State Bank KfW, the European Investment Bank (EIB) and the former pension reserve fund known as the Ireland Strategic Investment Fund (ISIF).
Government sources have said that if the bank proves successful, the €5bn lending target could be extended.