Credit Guarantee Scheme

Earlier this year the Government announced (as part of its Action Plan for Jobs 2012 programme) a planned range of new supports for struggling SME’s, including the establishment of a credit guarantee scheme.

The Credit Guarantee Bill 2012, published in April, is the draft legal embodiment of the Government’s proposals for such a scheme. The central element of which is a 75 per cent government guarantee on loans granted by participating lenders to qualifying SME’s.

The Minister can guarantee the repayment to that lender of up to 75 per cent of the principal monies loaned to a participating borrower under a loan agreement. Participating borrower is a defined term in the Bill and falling within its ambit are SME’s employing fewer than 250 persons (and satisfying maximum turnover thresholds).

Currently excluded from the definition of a loan agreement are overdraft facilities and arrangements to finance existing debt.

Participating borrowers will be subject to a two per cent annual premium on the outstanding balance of scheme loans, payable to the minister. Guarantees under the scheme will be given to each participating lender for a collection of loans (a portfolio approach) rather than on a loan-by-loan basis. The value of the loans which may be guaranteed under the scheme is capped at aggregate maximum of €150 million per annum.

The minister must also ensure that the extent of his/her liability to a single participating lender under the scheme does not exceed 10 per cent of the aggregate principal of the moneys borrowed under the scheme from that lender in any one year.

It is envisaged that the Credit Guarantee Scheme will be in place before the end of 2012.

Brian Dignam is Partner in OSK.

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