Credit Guarantee (Amendment) Act 2016
President Michael D. Higgins signed the Credit Guarantee (Amendment) Act 2016 into law earlier this year. The aim of the Credit Guarantee Scheme, enacted by way of the Credit Guarantee Act 2012, was to provide Small and Medium Enterprises that cannot access conventional financial facilities with an alternative method of financing their businesses.
with the State taking an increased proportion of the risk associated with the lending This alternative financing initially came in the form of a state backed guarantee in which the state covered 75% of the finance provided to the business. Since the passing of the Act in 2012, approximately €45 million in credit guarantee loans have been sanctioned, with the average loan amounting to over €160,000 however, it was recognised that certain reforms were desirable in order to further encourage lending.
The changes to the Principal Act under this amendment are:
- An increase in the amount that the state is in a position to guarantee from 75% to 80%. This comes on foot of a recommendation made by the Steering Committee following the conclusion of a review of the Scheme in September 2013. The primary aim of this is to redistribute the risk between the financial providers and the State, with the State taking an increased proportion of the risk associated with the lending.
- The amendment limits the annual amount of credit guaranteed by the State to €150 million.
- The definition of “finance provider” has been broadened so as to include providers of credit facilities, invoice credit facilities as well as other non-bank financiers.
- The definition of loan agreement has also been broadened so as to include invoice discounting, leasing and overdrafts. In this regard, credit card and other credit line facilities now come within the remit of a loan agreement
The Minister may now provide counter-guarantees which will enable the Strategic Banking Corporation of Ireland to access matching guarantee facilities from EU lenders such as the European Investment Bank and the European Investment Fund.
It is hoped that these reforms will have the effect of increasing the amount of credit available to SME’s in Ireland.
Copyright © Alban O’Callaghan, McKeever Solicitors, 5th May 2016
This article is a general review of the law on the subject and is not intended to be a complete statement of the law. Specific legal advice must be sought on a case by case basis. For further information please contact Alban O’Callaghan or Max McGahon.