The Strategic Banking Corporation of Ireland (SBCI) is urging ambitious SMEs to leverage up to fund growth investment.
The SBCI points to European Investment Bank research which shows that one in five Irish firms are not intending to invest in the next year compared with one in ten firms across Europe. Policy makers worry that this reluctance to borrow to invest will lead to a competitiveness gap.
To prod borrowers along, SBCI has developed a new €300m loan fund called the Future Growth Loan Scheme. The Corporation recently invited banks and other lenders to take part in the scheme, which will make funding available to businesses and the primary agriculture and seafood sectors to support strategic long-term investment in a post-Brexit environment.
CEO Nick Ashmore (pictured) explains: “The interest rate will be 4.5% or less, with terms of eight to 10 years. The minimum loan amount for SMEs will be €100,000, and €50,000 for primary agriculture. An attraction for borrowers of FGLS funding is that loans of under €500,000 will be sanctioned on an unsecured basis. The maximum loan amount will be €3m.”
The SBCI was established in September 2014 to ensure that through economic cycles Irish SMEs have access to stable, lower-cost, long-term funding options. In its 2017 annual report, the Corporation stated that since inception to March 2018 it had supported loan finance to 23,870 SMEs employing 122,200 people, with total SBCI finance exceeding €950m.
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The average loan size from 2014 to 2017 was €40,000, with a range from €1,500 to €4.3m. Through 2017, SBCI-funded loans of €145m at an interest rate of 2.95% were drawn down by primary agriculture businesses under the Agriculture Cashflow Support Loan Scheme.
The minimum loan thresholds in the Future Growth Loan Scheme may signal that the strategic focus is narrowing in on meaningful, long-term investment decisions.
SBCI policy is directed by the NTMA at the behest of the Department of Finance. The department and minister Paschal Donohoe have been keen to signal to SMEs that there is an official funding response to Brexit, and SBCI’s loan fund in 2018 was called the Brexit Loan Scheme.
Banking sources say that take-up of this €300m loan fund, priced at a maximum interest rate of 4.0%, was disappointing. Apparently among business owners and farmers there is concern that if they borrow for a ‘Brexit-fix’ and Brexit turns out to be benign, then the competitor who hasn’t borrowed could end up in a more advantageous position financially.
SBCI funding is definitely in demand in the asset finance area. In December 2018 the Corporation made available €75m to Finance Ireland, bringing total funding advanced to the on-lender to €126m. Finance Ireland is active in hire purchase, leasing, working capital and agri asset finance offerings.
