The Banking and Payments Federation Ireland (BPFI) called on the government to put in place a program offering up to 90% guarantees against loans to small and medium-sized enterprises (SMEs) to help the economy recover from the pandemic of Covid-19.
SMEs in industry, construction, distribution and service sectors face a financing need of up to € 6 billion to € 8 billion, BPFI said in a new document. However, relaxing the assumption to only half of small businesses in need of liquidity support would reduce the level of loans requiring state support by € 3 billion to € 4 billion, he said.
BPFI is also urging the government to improve its Covid-19 working capital loan program, make it easier and cheaper for SMEs to take the exam route to ensure business survival, and to review corporate trade tariffs. services operating in tourism and hotels, which have been hit hard by the crisis.
“The normal criteria used by financial institutions to evaluate loan proposals will not work in the current economic climate resulting from the pandemic due to the abnormal risks associated with such loans,” the BPFI document said. “Government guarantees for emergency loans made by banks to temporarily troubled but otherwise creditworthy borrowers would directly address the problem. “
Department of Public Expenditure and Reform Secretary-General Robert Watt signaled earlier this month that the government was considering improved SME guarantee programs, open-ended grants and equity support cases then. that he was planning the next stage of the economic battle. .
The UK government decided this week to offer full guarantees for emergency loans up to £ 50,000 (€ 57,375) for small businesses hit by the Covid-19 shock. Loans between that amount and £ 5million will remain subject to an 80% guarantee announced last month.
Countries like Germany and Switzerland have set up programs offering comprehensive state guarantees for loans to SMEs.
BPFI proposes that the government support 90 percent of microenterprise loans up to € 50,000, falling to 80 percent for SME loans up to € 5 million. These loans would be interest free for the first 12 months and have a repayment term of up to 10 years.
BPFI said a guarantee program would still require banks to take out loans “to safe and sound standards”, based on the borrower’s financial data before the crisis. “A guarantee of most of the principal can significantly reduce the lender’s exposure to the current break in activity, which in turn will increase the banks’ lending capacity,” he said.