LAST UPDATE | 14 Jul 2020

THE GOVERNMENT HAS agreed to publish the Credit Guarantee (Amendment) Bill 2020, which will provide legislative basis for the largest credit guarantee scheme for businesses in the history of the State.

It will make overdrafts, term loans and working capital available for small- to medium-businesses with up to 500 employees severely hit by the Covid-19 pandemic.

It offers a payment-free period at the start, of six months to a year, where payments aren’t needed; as well as loans of up to five years, rather than three, according to Tánaiste and Minister for Enterprise, Trade and Employment Leo Varadkar.

The new Covid-19 Credit Guarantee Scheme will make low-cost loans available to businesses impacted by the pandemic, providing liquidity as the economy continues to reopen, according to the Enterprise Minister.

There will be an open call for applications in due course, the Department of Enterprise said; Varadkar said that they expect the loans to start in the autumn, and that by September or October it will be “up and running”.

Trust, risk, and the banks

The Bill will remove the portfolio cap, which will increase potential maximum liability for the State of €1.6 billion; lenders will cover the remaining €400 million.

As with other credit guarantee schemes, the Covid-19 Scheme will be operated by the Strategic Banking Corporation of Ireland and will be available through three banks; AIB, Bank of Ireland and Ulster Bank.

When asked on RTÉ’s Morning Ireland whether the banks could be trusted with this scheme, following on from comments he made at the weekend, Varadkar said the approach was “trust and verify, and double-check to see whether what’s been promised has been delivered on”.

“What we’re trying to put in place is a guarantee that will incentivise (sic) the banks to lend to businesses,” he said.

The risk share of 80% for the State and 20% for the finance provider remains in place.

Varadkar said that they considered the State taking 100% of the risk, but said that would mean there’s no disincentive to avoid reckless lending by the lender. 

If somebody has no skin in the game, takes no risk whatsoever, the taxpayer is 100% liable… and there’s no disincentive to avoid reckless lending, or lending to companies that, sadly, won’t be able to pay the money back.

When it was put to him that the UK had put up 100% of the risk, Varadkar said that “you could see in a few years’ time the British taxpayer being on the hit for that”.

“Whether that’s the right decision or not remains to be seen.”

Delayed start

The scheme was held up for weeks as a government needed to be formed to pass the required legislation through the Dáil and the Seanad (the new Taoiseach needed to appoint 11 Senators to the Seanad before they voted on legislation). 

The legislation is expected to go through the Oireachtas next week.

Minister Leo Varadkar 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 changes being made to this Scheme will bring our offering into line with similar schemes across Europe.

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

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

The current Credit Guarantee Scheme has a portfolio cap in place for individual finance providers which limits the State’s exposure to 13% of the loan facilities included in the Scheme.

Varadkar also made the argument that there is no portfolio cap on this scheme.

Removal of the portfolio cap is essential, the Department said, in order to ensure lenders provide much needed liquidity to businesses and signals the strength of the government’s policy response to the unprecedented health pandemic and economic crisis.

The Wage Subsidy and Pandemic Payment

“The position as of today is that the Pandemic Unemployment Payment ends on 10 August,” Varadkar said, but added that “it will be extended, it was never the intent that it would just stop overnight, but it would have to be phased out.”

He argued that it isn’t fair to continue the Pandemic Unemployment Payment, worth €350 a week, when the normal social welfare payment is worth €200 a week.

It also wouldn’t be fair. Some people who lost their jobs for example, in January February of this year are getting paid €203 a week, whereas some people who lost their jobs since are on €350.

“The idea is to regularise the situation over a period of time, and bring the Pandemic or Unemployment Payment back in line with the regular job seekers’.”

He said that the priority was to get people back to work, and that 42% of people who were on the Covid-19 PUP are “already back to work”. 

On whether VAT would be reduced for the hospitality sector, Varadkar said a decision hadn’t been made yet.

“It will be a mix of things,” he said, between extending the Wage Subsidy Scheme and bringing the Pandemic Unemployment Payment in line with the standard unemployment payment; it will be “a package when you see it in the round will be of scale”.