Businesses face up to 1.55% guarantee fees for cheap State-backed loans

Businesses face paying insurance fees of up to 1.55 per cent a year to the State for loans on offer from Monday through the Government’s €2 billion Covid-19 credit guarantee scheme.

The State’s main banks have set maximum interest rates for small business loans on offer through the new scheme at as low as 2.75 per cent, about half the average cost of a typical SME loan.

The guarantee plan, first flagged in early May, opened for applications today and will run until the end of the year.

The scheme, which provides a State guarantee for 80 per cent of borrowings advanced to firms under its auspices, is aimed at companies that have lost 15 per cent of actual or projected turnover.

Loans of €10,000-€1 million are available under the scheme, which initially will be made through Bank of Ireland, AIB and Ulster Bank. Officials are working to bring lending to market through other providers.


AIB said in a statement that it has set a maximum variable interest rate of 2.75 per cent a year on loans it is offering through the scheme with terms from one to 5½ years. Security will be requested for loans above €250,000.

Bank of Ireland has set its maximum rate for secured loans over €250,000 2.75 per cent, with unsecured facilities below that amount capped at 3.23 per cent.

However, the AIB statement highlighted that annual State guarantee fees – essentially an insurance rate – attached to the loans range between 0.15 per cent and 0.68 per cent for SMEs, which, by definition have fewer than 250 employees and annual revenues of no more than €50 million. The longer the duration of the loan, the higher the fee.

Guarantee fees of between 0.3 per cent, for loans of up to one year, and 1.55 per cent for facilities extending beyond five years, apply to so-called small mid-cap companies that have fewer than 500 employees.

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