Temporary Partial Credit Guarantee Scheme
The SFA is currently involved in consultation on the Temporary Partial Credit Guarantee Scheme, with the Department of Jobs, Enterprise and Innovation officials and Capital for Enterprise Limited which was the winning tenderer for the design of the scheme.
As it is still in consultation phase, nothing is definite, but this is a brief summary of our discussions so far.
- Scheme is to address two market failures – lack of sufficient collateral / security due to present market conditions and traditional financing issues with novel markets (i.e. new innovative products/services/processes that banks do not have the skills to understand and thus to finance)
- It will be reviewed after 1 year, but it is anticipated that it will last initially for 3 years of issuing guarantees, with the average term per customer being 3-5 years.
- It is estimated that it will apply to 2-4% of the SME lending market
- I made the point strongly that we would like to see the scheme operate across all sectors – this is how it operates in the UK, subject to the EU De Minimis State Aid Framework (under which the scheme is likely to operate), i.e. only really the primary agriculture sector will be excluded. The max guarantee under the State Aid Framework is 80%.
- Please see the UK model by clicking here, which is likely to be adapted for our circumstances, but it will not be the same. The broad operation looks good and has been successful.
- The Scheme will be paid for through a premium on the interest payment payable to the operating company (likely to be 2%), and the remainder will be borne by the State within its existing budgets (i.e. no new pension levy or the like to fund it). It will justified on the basis of jobs retained / created, sales, etc. – detailed metrics to be decided.
- I’ve asked them specifically to think about additionality vs. displacement considerations; to put mechanisms in place to ensure that the fund does not run out of money (e.g. due to few medium companies having large applications on it – hasn’t occurred in the UK); how appeals will be conducted and how it will affect existing appeals with the Credit Review Office (we don’t want banks pushing people into a more expensive product and need to ensure that they are operating to normal lending standards – thus, an independent audit of each lender in the scheme will be essential.)
- All banks have so far engaged in discussions with them, along with the IBF, and it is hoped to make the scheme available to as many financial bodies as possible (in the UK it also extends to specialist invoice providers and community development financial institutions).
- It is not envisaged that this will be relevant to start-ups, who will be looked after through a separate €100mn micro-finance fund that’s also in development.
The deadline for the design of the scheme is mid-October, and they have already indicated to the market that they will be going to tender for the operator of the scheme at that stage, so envisage that it will be place by the end of the year.
We’ve agreed that they’ll come back to us with detailed proposals following the consultation phase, prior to finalising the scheme.
For further information, or if you have any comments to input into the consultation, please contact Patricia Callan at Tel: 01-6051602 or e-mail: email@example.com