Businesses face up to 1.55% insurance 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 through the Government’s €2 billion Covid-19 credit guarantee scheme, which opened to applications on Monday.

The State’s main banks have set maximum interest rates for small business loans on offer through the new scheme at as low as 2.48 per cent, less than half the average cost of a typical SME loan.

The guarantee plan, first flagged in early May, 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. The scheme is operated by the State’s Strategic Banking Corporation of Ireland.

Ulster Bank has set its interest rates for State-backed loans at 2.48 per cent for facilities greater than €250,000, and 3.48 per cent for amounts below that threshold.

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

State aid

Bank of Ireland has a maximum variable rate for secured loans over €250,000 of 2.75 per cent, with unsecured facilities below that amount capped at 2.95 per cent.

However, annual State guarantee fees – essentially an insurance rate – attached to the loans range from 0.15 per cent to 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.

The fees are required under European Union approval for the loan guarantee scheme, as it is a form of state aid.

“The past few months have been extremely difficult for Irish businesses. We have seen our small and medium enterprises work hard to adapt and to continue trading in the face of this profound disruption,” said Tánaiste Leo Varadkar. “The Government is determined to help businesses as they operate in a fundamentally changed trading environment.”

The scheme permits loans to provide firms with working capital, funds for investment and the ability to refinance existing Covid-19-related debt. It does not enable companies to refinance non-Covid-19 borrowings.

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