The SBCI, a Government initiative to increase the availability of loan finance to small and medium sized enterprises was launched today, accompanied by announcements from AIB and Bank of Ireland that they will act as onlenders for the funds. The rate will be 4.5 per cent, approximately 200 basis points lower than current lending in the marketplace, and will range in maturities of 2 to 10 years.
The interest rate on the funds - 4.5 per cent per annum variable - was confirmed following the Government’s announcement of how the Strategic Banking Corporation of Ireland (SBCI) is set to support the SME market.
SBCI CEO Nick Ashmore announced the details of its SME offering today at a press conference with Taoiseach Enda Kenny, Tanaiste and Minister for Social Protection Joan Burton, Minister for Finance Michael Noonan, and Minister for Public Expenditure and Reform, Brendan Howlin. The first phase of SBCI measures includes new, SME-friendly loan products available from 9 March through AIB and Bank of Ireland which will act as 'On-Lenders' of low-cost funding provided to them by the SBCI.
AIB
AIB is making the credit available to SMEs at the new rate after securing funding from the SBCI to lend in to the economy and support job growth. The SBCI will provide a discount of up to 1 per cent, which will be matched by AIB, the bank said.
AIB’s Director of Retail and Business Banking, Bernard Byrne, said “Under the terms of the fund, AIB will lend to eligible SMEs at the highly competitive rate of 4.5 per cent per annum variable. This lower cost credit should be attractive to SMEs and allow them to borrow to invest in their businesses at this crucial turning point in our economy. Individual loans of up to €5 million will be available under the scheme,” Bernard Byrne said.
“The funding is available to SMEs for working capital loans and investment loan purposes. I would particularly like to thank the SBCI for its efforts in ensuring that many farmers are also eligible for this fund,’’ he continued.
The Government approved the establishment of the SBCI in May 2014 to enhance the supply of credit to Small and Medium Enterprises (“SMEs”) by using its funding to lend to SMEs via institutions called ‘on-lenders’. The SBCI is financed by Kreditanstalt fur Wiederaufbau (“KfW”), Germany’s promotional bank, the European Investment Bank (“EIB”) and the Irish Strategic Investment Fund (“ISIF”) with an initial fund of €800m. The key advantage of the SBCI is its lower cost of funding and the fact that it can lend to on-lenders for up to ten years.
The Minister for Finance, Michael Noonan, welcomed the decision by AIB to match the discount offered on the €200 million that the bank is drawing down from the SBCI.
“The core purpose of the SBCI is to enhance the supply of credit to SMEs by offering its €800 million in funding to institutions known as ‘on-lenders’. These on-lenders, which may be banks such as AIB or other organisations that have capital and the ability to assess SME loan proposals, can then lend the money on to businesses,’’ the Minister said.
Minister Noonan said the fact that AIB is matching the discount offered by the SBCI should prove a welcome stimulus for businesses. The Minister added some 600 SME customers will be further briefed on the fund at an AIB event this evening.
The new loan fund will be available to SMEs in AIB branches, business centres and over the phone in Ireland from March 9th, subject to eligibility, normal lending criteria, terms and conditions. Loans from the fund will have a minimum term of two years and a maximum term of ten years.
Bank of Ireland
Bank of ireland said that the funding can be used for a number of activities to develop a business such as the purchase, renovation or extension of the business premises or for IT infrastructure or Research and Development expenses.
The Strategic Banking Corporation of Ireland (SBCI) has launched its initial product programme to provide Eur400million of low-cost long-term funding to SMEs. The first phase of SBCI measures includes new SME-friendly loan products available from 9 March through AIB and Bank of Ireland which will act as On-Lenders of low-cost funding provided to them by the SBCI. Using existing lenders for the first phase allows the SBCI to reach the widest range of SMEs as quickly as possible. At the launch (L-R) were Minister for Public Expenditure Brendan Howlin TD, Minister for Finance Michael Noonan TD, Taoiseach Enda Kenny TD, Tanaiste Joan Burton TD and SBCI Chief Executive Nick Ashmore.
In a statement it said "The term loan specifications set out for the new funding include a minimum loan amount of €25,000 with a maximum loan amount of €5 million and the term of the loan facility from a minimum of two years to a maximum of ten years".
The statement quoted Nick Ashmore, SBCI Chief Executive, as saying: “Bank of Ireland has been at the forefront in terms of delivering the first SBCI funding programme to market working closely with the SBCI team. We are excited about the breadth of market coverage and geographic reach that Bank of Ireland provides and are excited to see the SBCI’s offering complement their existing range of programmes and supports for business customers”.
Commenting on the announcement Mark Cunningham, Director, Bank of Ireland Business Banking said: “As Ireland’s No 1 bank for business customers we welcome the availability of this fund to add to the broad range of products and other key services that we offer to support and develop our business customers. We continue to support our SMEs and start-ups over a range of activities to include our bi-annual National Enterprise Weeks, our partnerships with Twitter and Facebook and our involvement in a number of programmes aimed at enabling SMEs to grow and develop their businesses. The new SBCI lending scheme is a further extension of our commitment to provide lending to these companies.
“I encourage all SMEs and agri customers that are looking to secure funding for their business to come and speak to us. We have credit available and our team of business relationship managers are on hand to meet with customers to help them grow and develop their businesses”, he concluded.
ISME Statement
ISME, the Irish Small and Medium Sized Enterprises Association, welcomed the launch, but in a statement warned that "adequate oversight will be required to ensure that the lending partners distribute the funding to SMEs only and not to less risky large corporations as has happened in the past".
ISME CEO, Mark Fielding, commented, "While a separate bank, similar to the ICC Bank, would have been preferable, we welcome this long awaited initiative. It is important that Government makes it clear to the banks that this funding is not to be misallocated. It is intended that the funds will be used by SMEs and no excuses or bank fudging for the allocation of the funding elsewhere should be tolerated. The Central Bank must monitor the situation strictly and banks must be compelled to report to it regularly. The banks cannot be allowed to revert to past form similar to when they used the cheaper funds in the nineties to refinance larger businesses. Penalties for non-compliance should be enforced."
"ISME recommends that monthly returns on loans applied for and made, be returned separately to the Central Bank, showing the type, duration and interest rate on each loan made from SBCI funds as well as recipients by size and sector. This will assist in monitoring the loan books and hopefully stop the rescued, risk-averse banks dealing only with 'low or no risk' lending.
"This initiative could potentially be of great benefit to job and wealth creating Irish SMEs but only if the Government ensures that the bailed out banks stick to the rules." he concluded.
On-lending
SBCI said that 'using existing lenders for the first phase allows the SBCI to reach the widest range of SMEs as quickly as possible'.
Subsequent phases will see the SBCI supporting smaller existing bank and non-bank funding providers and bringing in new participants to the Irish market to act as On-Lenders, enabling them to compete and grow. The SBCI product range will also expand further to include more targeted funding solutions.
The SBCI’s first product offering includes the following three products:
- The SBCI SME Investment and Working Capital Loan - Key features include a discounted interest rate and loan amounts up to €5 million for periods between 2 and 10 years.
- Facilities to Re-finance Exiting Banks[1] - Loans to refinance those SMEs whose current bank loan facilities originated with banks which are exiting the Irish market. Loans may also cover new lending for investment and working capital purposes.
- SBCI Agriculture Investment Loan - Available to support investment by agriculture SMEs involved in primary agriculture production, the processing of agriculture products or the marketing of agriculture products.
"Details on individual lending rates and specific product features will be available from AIB and Bank of Ireland – and other lenders as they begin to offer SBCI loans", said SBCI.
The Taoiseach said:
"The mission of the Strategic Banking Corporation of Ireland is aligned to that of Government. Providing more credit for businesses to grow and create more jobs is key to securing Irish recovery. More jobs fund better services, reduce taxes on those already at work and provide opportunities for people who have left Ireland to come home. Improving credit availability for business was a feature of discussions I had with Chancellor Merkel on ways to reinforce Ireland’s economic recovery. As a result, KfW, the German development bank, was asked to work with the German and Irish authorities in order to deliver on funding to help create the SBCI."
The Tanaiste said:
"Start-ups and other small businesses have a vital role to play in creating jobs, but access to credit is essential if our dynamic young enterprises are to survive and thrive. Too many SMEs still find it difficult to get the credit they need. The Strategic Bank will take a fresh approach, ensuring that a secure and sustainable credit line is available for high potential, high growth companies. Today we are making some €400 million available to that end. The Strategic Bank will help grow the recovery and place the economy on a sound and sustainable footing."
SBCI Chief Executive Nick Ashmore said:
“Irish SMEs have been paying more to borrow than similar businesses across Europe. The SBCI products we are bringing to market are designed to address this in a simple and SME-friendly way. By bringing cheaper, longer-term funding supported by the EIB, KfW and the ISIF, the SBCI will help SMEs with their funding costs and make it easier for them to support jobs and grow their business. However, this is just the start of the SBCI’s work in filling a major gap in addressing the needs of SMEs. Today’s first phase is about using existing lenders to distribute new, SME-friendly loans as widely as possible.
In the months ahead, we will make SBCI loans available through other banks that are already active here, as well as supporting existing and new specialist SME lenders in the Irish market thereby increasing competition. Beyond this the SBCI will look to leverage further support from Europe and address more specific market issues.”
The launch took place in the Liffey Trust Centre in Dublin’s North Docklands which has supported more than 200 enterprises creating employment for approximately 800 people. The event was attended by approximately 100 SME owners and representatives of the SME community.
Further Information on the SBCI - according to briefing note by SBCI:
SMEs which are eligible for SBCI loans are defined as “independent enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding €50m and/or an annual balance sheet total not exceeding €43m”.
Together with the supports already being provided by the Credit Guarantee Scheme, Microfinance Ireland and the Credit Review Office, the SBCI’s products will be easy to access through the online tool for SMEs.
The SBCI’s initial funding partners are:
* the European Investment Bank (EIB);
* Kreditanstalt fur Wiederaufbau (KfW, the German promotional bank); and
* the Ireland Strategic Investment Fund (ISIF).
These partners are providing long-term funding at attractive rates to the SBCI to support Irish SMEs.
Background to the SBCI
* Unlike many European countries, Ireland did not have a state development bank to sustain funding to businesses throughout the financial crisis.
* During Ireland’s exit from the EU/IMF programme in late 2013, the Taoiseach and German Chancellor Ms Angela Merkel agreed that the German promotional bank KfW would help finance the Irish SME sector.
* It was this European agreement that led to the creation of the Strategic Banking Corporation of Ireland (SBCI), ensuring that in future, Irish businesses have access to long-term, patient funding.
* The Department of Finance and the National Treasury Management Agency worked throughout 2014 to create the necessary mechanisms to establish the SBCI.
* Building on the initial funding offer from the KfW, the project team added funding from the European Investment Bank (EIB) and the Ireland Strategic Investment Fund, a new fund to which the assets of the National Pensions Reserve Fund were transferred.
* The Government approved this approach and legislation enabling the establishment of the SBCI was passed by the Oireachtas in July 2014.
* The SBCI was formally launched in October 2014 by the Minister for Finance and Minister for Public Expenditure and Reform, together with the German Minister for Finance, Dr Wolfgang Schauble , President Werner Hoyer of the EIB and Dr Ulrich Schroder of the KfW.
