The government has announced1 that the €2bn COVID-19 Credit Guarantee Scheme (CCGS) is to be extended to the end of the year (previously applications were required to be submitted by 30 June 2021).
Representing the biggest ever state-backed loan guarantee in Ireland, the scheme offers an 80% government guarantee to participating lenders to provide loans of between €10,000 to €1,000,000 for up to five and a half years to Irish businesses.
Loan Amounts, Interest and Restrictions
The intention of the scheme is to support SMEs, primary producers and small mid-cap enterprises having experienced or who expect to experience a reduction of not less than 15% in turnover or profitability as a result of COVID-19 to fund working capital or investment requirements. The maximum amount that can be borrowed will be assessed by reference to:
- 2019 turnover;
- 2019 wage-costs; or
- Liquidity needs for either the coming 12 or 18 months (depending on the size of the relevant business).
Interest rates are dependent on the loan but are intended to be lower than would otherwise be available in the market without state support. A guarantee premium is payable depending on the term of the loan and size of the borrower.
Loans cannot be used to refinance pre-COVID-19 debt or to finance pure real estate development activity.
To avail of the scheme businesses apply to lenders participating in the scheme. It has been announced that, alongside the pillar banks a number of credit unions and non-bank lenders have joined the scheme (with more in the process of joining) since the beginning of 2021.
The Minister for Finance, Pascal Donohoe TD has been quoted as saying that the extension will ensure “ongoing availability of credit throughout the remainder of this year to our vitally important SME sector who are facing the significant challenges of not only COVID-19 but also adjusting to Brexit”.
The Department of Enterprise, Trade and Employment note that as at 12 March 2021, 5,271 applications have been made for loans amounting to €358.33 million and therefore significant headroom remains in the scheme.
It has been reported that take-up by businesses has been relatively low under the CCGS scheme due to borrowers considering the term relatively short, whilst other options, such as the Future Growth Loan Scheme administered by the SBCI, offering potentially higher amounts for a longer term have been available.
Given the scope of the CCGS covers both SME and mid-cap enterprises (with more than 250 but less than 500 employees) there is also potential overlap with other announced schemes, such as the Pandemic Stabilisation and Recovery Fund being made available through the Ireland Strategic Investment Fund (ISIF), a €2 billion fund for medium and large enterprises with more than 250 employees.
It remains to be seen whether, with continued pressure on business as COVID-19 restrictions continue to bite and the FGLS fills up (with only two providers out of the original six now accepting applications), there will be an increase in demand on the support made available under the CCGS scheme.
If you have queries on the Credit Guarantee Scheme or any of the issues raised in this article, please contact Tim Waghorn email@example.com or any member of the Banking and Financial Services Team at Hayes.
1 Government agrees extension to €2bn Credit Guarantee Scheme - linkBack to Full News
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About the Author
Tim is an Associate in the Banking and Financial Services team at Hayes solicitors. Tim has extensive experience advising both borrowers and lenders across a wide range of financing transactions including corporate debt facilities, complex cross-border financings, export-credit backed lending and leveraged/acquisition finance.