Legislation for the proposed €2bn Covid-19 Credit Guarantee Scheme (CGS) is expected to go through the Oireachtas next week.
The new scheme will see the government guarantee 80% of the value of loans offered to businesses impacted by the Covid-19 pandemic. EU rules allow for a 90% guarantee but the Irish government wants to make sure banks have skin in the game.
The Strategic Banking Corporation of Ireland will operate the Covid-19 CGS and loans will be made available through AIB, Bank of Ireland and Ulster Bank.
The government is also opting to remove the portfolio cap proposed in an earlier version of the scheme, which means that the state has a potential liability of €1.6bn should it be required to cover bad loans.
This scheme will be the largest credit guarantee scheme for businesses in the history of the state. A range of financial products will be available to eligible businesses, including overdrafts, term loans and working capital.
In Association with
Enterprise minister Leo Varadkar (pictured) said that the changes being made to the scheme will bring the offering in 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,” Varadkar added. “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.”
COVID-19 Credit Guarantee Scheme
• The scheme is for SMEs, Primary Producers and small Mid-Caps (defined as businesses with up to 499 employees).
• In order to qualify for the Scheme, the borrower will have to declare an adverse impact of minimum 15% of actual or projected turnover or profit due to the impact of Covid-19.
• The amount available under the Covid-19 CGS is €2 billion.
• A guarantee rate of 80% for the State with the lenders retaining 20% of the risk of the loan.
• The removal of any portfolio cap for individual lenders. A portfolio cap has been a feature of previous CGS. The government insists that removal of the cap for the Covid-19 CGS is essential in order to ensure lenders provide an interest rate reduction to borrowers and also comply with the Capital Requirements Regulation.
• The current standard facility size of €10,000 to €1 million under the current Acts will remain for the Covid-19 CGS.
• The products covered under the scheme will include a broad range of credit facilities including overdrafts, working capital and term loan facilities.
• Capital and/or interest moratoria for specific periods of time (up to one year) will be permitted under the Scheme but any decision regarding such moratoria will be at the discretion of the individual lender based on their assessment of their customer.
• Primary agricultural, fisheries and aquaculture producers may be included.
• A guarantee premium on each loan under the Scheme is required to be paid in addition to interest rate costs. For SMEs it is 0.25% in the first year, 0.50% in years two and three and 1% in years four, five and six.
• The scheme will be time bound and will be available initially until 31 December 2020.
• The rollover of loans will be facilitated but no loan included in the Scheme can extend beyond 31 December 2026.
Germany's Covid Bailout
Meanwhile, the European Commission has approved German plans to set up a fund with a budget of up to €500 billion for providing guarantees and investing through debt and equity instruments in enterprises affected by the coronavirus outbreak.
Germany's scheme was approved under the EU's State Aid Temporary Framework.
The German scheme will take the form of guarantees that are expected to mobilise €400 billion of the total amount; subsidised debt instruments in the form of subordinated loans; and recapitalisation instruments, in particular equity instruments such as acquisition of newly issued ordinary and preferred shares or other forms of shareholding; and hybrid capital instruments such as convertible bonds.
The Temporary Framework, which sets the boundaries for the Irish government's stimulus plan, provides for the following types of aid which can be granted by Member States:
• Direct grants, equity injections, selective tax advantages and advance payments of up to €100,000 to a company active in the primary agricultural sector, €120,000 to a company active in the fishery and aquaculture sector and €800,000 to a company active in all other sectors to address its urgent liquidity needs.
Member States can also give, up to the nominal value of €800,000 per company, zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €100,000 and €120,000 per company respectively, apply.
• State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.
• Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.
• Public short-term export credit insurance for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable”.
• Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.
• Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.
• Targeted recapitalisation aid to non-financial companies, if no other appropriate solution is available.
The Temporary Framework will be in place until the end of December 2020. For recapitalisation measures only the Commission has extended this period until the end of June 2021.
