Government prepares €2bn Covid-19 loan scheme for SMEs

14 Jul 2020

Image: © THANANIT/

The Covid-19 Credit Guarantee Scheme aims to ensure that SMEs can access liquidity to keep their businesses operating as the economy reopens.

The Irish Government has announced that the Covid-19 Credit Guarantee Scheme will make low-cost loans available to businesses impacted by the pandemic. The scheme is the largest credit guarantee scheme in the history of the State.

The Credit Guarantee (Amendment) Bill 2020 will underpin the scheme and will remove the portfolio cap, resulting in increased potential maximum liability for the State of €1.6bn.

The Credit Guarantee Scheme aims to ensure that SMEs, primary producers and small mid-caps can access liquidity to keep their businesses operating as the economy continues to reopen and more people get back to work. It will be available for a wide range of products including overdrafts, term loans and working capital.

SMEs are expected to be the main beneficiaries, and the total amount available under the scheme is €2bn. To qualify, borrowers will have to declare an adverse impact of at least 15pc of actual or projected turnover or profit due to the impact of Covid-19.

The legislation is expected to go through the Oireachtas next week, allowing for a swift enactment. As with other credit guarantee schemes, it will be operated by the Strategic Banking Corporation of Ireland and will be available through three banks: AIB, Bank of Ireland and Ulster Bank.

‘We want to give confidence to SMEs’

Commenting on the new scheme, Tánaiste and Minister for Enterprise, Trade and Employment Leo Varadkar, TD, said: “We want to help viable businesses to get through the difficult phase of reopening and deal with the new realities and challenges posed by Covid-19. The Credit Guarantee Scheme will provide low-cost loans to businesses and will in turn help more people get back to work.”

Varadkar said that the changes introduced through this scheme will bring Ireland’s offering in line with similar schemes across Europe. He also said that the scheme complements the other actions taken to date by the Government, including direct grants to businesses, the warehousing of tax liabilities and commercial rates waivers.

“We want to give confidence to SMEs in particular by providing the liquidity needed to get through the economic upheaval caused by the pandemic,” Varadkar said.

“The July Stimulus Package will be the next step in our recovery plan as we seek to get businesses back on their feet and out people back to work.”

Legislative changes

To put the new scheme in place, legislative changes must be made to the existing Credit Guarantee Act 2012. These changes allow the removal of the portfolio cap and also increase the size of the scheme to take account of the needs of businesses as they reopen facing new economic challenges.

The current Credit Guarantee Scheme has a portfolio cap in place for individual finance providers, which limits the State’s exposure to 13pc of the loan facilities included in the scheme. The Government decision removes any portfolio cap for credit facilities provided by each finance provider.

The risk share of 80pc for the State and 20pc for the finance provider remains in place. Removal of the portfolio cap will ensure lenders can provide as much needed liquidity to businesses and, according to the Government, signals the strength of the policy response to the Covid-19 pandemic and economic crisis.

The Government added that restoring liquidity to borrowers will be a “critical” feature of economic recovery.

Kelly Earley was a journalist with Silicon Republic