John Perry (Sligo-North Leitrim, Fine Gael)
I welcome this opportunity to present the Credit Guarantee Bill 2012 to the Seanad. The Bill is one of the key targeted actions in the Government Action Plan for Jobs 2012 to address access to credit and support lending to SMEs, and will, I believe, prove to be a practical way of facilitating additional lending to SMEs. This is not a grant nor a support for ailing businesses. It is a scheme intended to address specific market failures that prevent bank lending to some commercially viable businesses, by providing a 75% guarantee to banks against losses on qualifying loans to job creating firms. The target beneficiaries are commercially viable SMEs, that is those which display a repayment capacity for additional credit facilities, but that cannot secure credit facilities under current conditions due to two market failures, namely insufficient collateral or lack of appreciation by the credit institutions of the growth-expansionary business model.
I would like to present some background on the rationale for introducing a credit guarantee scheme for SMEs. In February this year, the Government launched a range of measures under the Action Plan for Jobs to improve the competitiveness of the economy, to improve supports for job-creating businesses and to remove barriers to employment creation across the economy. Every Department and over 35 agencies and offices of the State are engaged with actions to support jobs which will be delivered in this calendar year.
Feargal Quinn (Independent)
I apologise for interrupting but is there a copy of the Minister of State’s speech available?
Denis O’Donovan (Fianna Fail) Link to this
We will arrange that.
John Perry (Sligo-North Leitrim, Fine Gael)
Yes, it will be provided.
The plan is an engine for change and will be reviewed and revitalised every year. It is the start of a programme of strategic interventions designed to aid economic recovery and clearly shows the Government’s determination to get our economy back on the right path to sustainable, exporting, innovative and enterprise-led growth and through that the creation of sustainable jobs. The introduction of the State backed guarantee scheme this year is one of the commitments that the Department made which will deliver positive results for the vulnerable SME sector quickly.
With regard to the importance of supporting SMEs, the Government has placed supports for the SME sector at the heart of its strategy for economic recovery because of the important role that SMEs play and in recognition of the challenging environment in which they have operated over the past few years. SMEs play a critical role in Irish economic life. Indeed, the existence of my post as Minister for State with responsibility for small business clearly demonstrates the focus of Government policy on this key sector. SMEs form the majority of all businesses in Ireland. They are the creative and innovative backbone of the economy and are the job creators of the future. It is imperative that Government policy helps them to grow and prosper. The Government is focused on ensuring that entrepreneurs and all companies throughout the economy are supported in every way possible to develop their business, increase exports, and maintain and create jobs. This strategy will revitalise and rebuild the economy and lighten the burden we have all been carrying over the past years as a result of a failed economic model. The Credit Guarantee Bill is one of the Government’s initiatives to give substance to this focus and commitment.
By far the most talked about problem in recent times facing the Irish small business sector is the lack of availability of adequate credit facilities. Financing of the economy is critical to long-term economic success. While large businesses have various options open to them, including the capital markets, SMEs are heavily dependent on the banking system. Therefore, a crucial aspect of supporting growth and recovery is fostering a favourable business environment including a well-functioning financial system. Clearly, to support the recovery, we need to find ways to ensure that credit worthy borrowers have access to needed loans. While this problem is not unique to Irish SMEs but rather a worldwide phenomenon, it is a problem which the Government feels needs urgent redress, hence the movement of the Credit Guarantee Bill.
The Government has been, and remains, particularly active in the context of addressing the issue of credit accessibility since it took office last year. The House will be aware that the Government secured a commitment from the main lenders, AIB and Bank of Ireland, to each make available not less than €3.5 billion next year and €4 billion in 2013 for new or increased credit facilities to SMEs. The aim is to restore the lifeblood of the market economy – the lending and borrowing that help fuel business investments, run factories, buy machinery and equipment and pay wages etc. This remains a key task and the establishment of this facility is another step in addressing market weakness in this area. New initiatives must complement rather than substitute for the main banks’ lending commitments and activities under the recapitalisation package and they must represent value for money from the taxpayer’s perspective. I have endeavoured to ensure that this guarantee scheme facilitates additional lending of up to €150 million, that would not otherwise have been extended by the banks, to directly assist businesses while at the same time ensuring appropriate safeguards are in place to protect the taxpayer.
With regard to specific market inefficiencies to be addressed, for all the efforts of Government in the area of getting credit moving, I would like to emphasise that it remains the responsibility of the banking system to provide credit to businesses. Government is prepared to offer additional targeted supports by identifying and addressing specific credit gaps or market inefficiencies which are impediments to lending. We have identified two distinct characteristics of the Irish SME lending market, namely lack of collateral and lack of comprehension of new markets or models by the banks which provide the rationale for a temporary partial credit guarantee scheme as follows. There is a cohort of commercially viable companies in the SME sector with growth potential that have experienced difficulties accessing credit as they do not have the security required for conventional collateral based bank lending. There is also an issue that predates, but has been exacerbated by, the banking crisis, whereby new companies or expanding companies engaged in new sectors, new technologies and markets struggle to secure finance. This can be due to a lack of familiarity or understanding on the part of the banks, of the new industry, the new product or the potential of new markets. These market failures in the provision of credit to viable businesses became particularly acute in Ireland during the property bubble, during which time the Irish banks lost capacity to assess credit risk in real economy companies that were unable to offer property related collateral.
This guarantee scheme will encourage lending to commercially viable SMEs and reorient lending to the real economy. It will encourage banks to lend to commercially viable SMEs in new sectors, technologies and markets, and in so doing place Irish firms on a more level footing with other international competitors that have access to similar schemes, thus making them more competitive and their jobs more sustainable and secure. The scheme will allow a business to not only acquire a loan it could not otherwise obtain but also to establish a favourable credit history with a lender so that the business may obtain future financing on its own. It will realign bank lending with enterprise policy and secure economic benefits from additional lending by increasing exports, creating and sustaining jobs and facilitating investment in the real economy.
The net Exchequer cost for an annual portfolio of €150 million of guaranteed lending is approximately €6.38 million. However, those costs should be seen in light of the benefits that will be generated by the additional lending attributable to the scheme. Economic gains arise in terms of improving the financing environment for SMEs, encouraging a banking system that is fit for purpose, increased GDP, improved competitiveness, increased innovation activity, job creation and maintenance, savings on welfare payments and increased direct and indirect tax payments. The benefits forecast to arise from this intervention in each year of operation, assuming €150 million of additional lending, include the creation of more than 1,000 jobs, over €25 million of Exchequer benefits in tax revenues and welfare cost savings, and a 398% return on the State’s investment.
Section 1 defines certain commonly used terms in the Bill. Section 2 provides for certain conditions that must be satisfied in respect of participating lenders. The Minister will enter into an agreement with each lender and will accredit the lender to participate. For lenders to participate, we will require a detailed consideration of how the lender will use the scheme to support lending over and above that currently being achieved. In order to demonstrate an understanding of the additionality principle, lenders will be requested to provide examples of situations in which the scheme could have been used in the past, such as viable lending applications that were declined specifically due to the circumstances that the scheme is intended to address. Section 3 provides for specific eligibility criteria for qualifying enterprises. The guarantee scheme is targeted at micro, small and medium-sized enterprises, employing not more than 250 staff, as defined by the EU Commission.
Section 4 confers on the Minister power to enter into agreements with the banks to give them a guarantee for qualifying enterprises. The aggregate of loans permitted within the scheme shall not exceed €150 million in any one year, thereby capping the State’s liability. The Government, having considered a range of possible combinations of guarantee rate and portfolio default limit that, when applied to the guaranteed portfolio, will deliver the desired overall risk share, has agreed on a guarantee rate of 75% and a portfolio default limit of 10%. This sets the overall portfolio claim limit at 7.5%. For a given portfolio of lending allocated to each bank, each loan in the portfolio would carry a 75% guarantee, but potential claims under the guarantee are capped by the 7.5% portfolio claim limit. Therefore, the actual default performance of a portfolio may in fact exceed the portfolio default limit. However, the extent to which the State covers overall losses is capped at the default rate of 10%, and any losses in excess of that must be borne by the lender.
Section 5 provides for the Minister to set up a credit guarantee scheme. The scheme may make provision for various terms and conditions such as conditions with which the participating lenders must comply, purposes for which loans may be given, reports and information by lenders to the Minister, conditions with which SME borrowers shall comply, and other matters. Section 6 requires the Minister to lay the scheme before both houses of the Oireachtas as soon as may be after it is made. Section 7 permits the Minister to appoint an operator via a commercial contract to administer the scheme after consultation with the Minister for Finance and the Minister for Public Expenditure and Reform regarding the terms and conditions of the contract.
Section 8 provides for a premium to be charged to participating borrowers in respect of loans guaranteed under the scheme. This 2% premium will be paid directly by the borrower to the State. The costs of the scheme will be partially offset by receipts of premiums paid by borrowers. Section 9 confers on the Minister the power to withdraw any guarantee if a lender fails or refuses to comply with the terms of the scheme. It also provides for protection for the SME borrower in the event that a guarantee is withdrawn from a lender, in that a lender cannot impose less favourable terms on the borrower upon the withdrawal of a guarantee. Section 10 provides for review of the guarantee scheme at any time. I have committed to review the scheme after 12 months of operation. The Minister must also submit a report of the review to both Houses of the Oireachtas not later than two months after the review is completed. Section 11 provides that costs associated with administering the scheme will be subject to sanction from the Minister for Finance, with the consent of the Minister for Public Expenditure and Reform, and will be met from moneys provided by the Oireachtas. Section 12 provides for the short title, the Credit Guarantee Act 2012, and commencement.
I must emphasise that facilitating small business financing is not a particularly simple or straightforward matter. Notably, the term “SME” encompasses a large mix of enterprises, and each SME faces a unique combination of local economic conditions and complex relationships with customers, suppliers and creditors. Hence, we are not advocating a one-size-fits-all solution. This scheme is designed to support commercially viable SMEs that are at the margins of SME commercial lending decisions. The initiative is a small step towards a more sophisticated and accessible financing environment for SMEs in Ireland, and is just one component of a suite of initiatives aimed at ensuring the flow of credit. Backing enterprise by providing a State guarantee to those who struggle to get credit from lenders meets a vital need. Such Government interventions inspire confidence and encourage small business owners and consumers to expand their businesses, invest in new plant and machinery, conduct marketing campaigns, be innovative, recruit new employees and increase the size of their businesses and of the economy. Therefore, it will add value to the measures already taken to address the SME credit supply issue, representing value for money to the State. I commend the Bill to the House.
Mary White (Fianna Fail) Link to this
I welcome the Minister of State and compliment him on the tremendous work he is putting into increasing the availability of finance for small and medium-sized companies. I know his heart and soul is in this job.
Any Bill or initiative that seeks to help viable businesses to survive and weather the great economic storm is to be welcomed. Specifically, the Government has targeted the SME sector as the key beneficiary of this Bill, which is also to be welcomed. We have heard a lot through the years from successive Governments about helping the SME sector, yet this help has not always materialised. This Bill, while welcome, is not a magic fix. As the Minister of State has said many times, there are 200,000 small businesses in this country, employing more than 655,000 people. When he was Minister of State with responsibility for enterprise in the 1990s, the late Séamus Brennan used to say that if every small business recruited one extra person, this would have a major impact on unemployment. This holds true today; small businesses are the backbone of the economy. Sadly, however, small businesses are being starved of credit. We know this because Mr. Trethowan of the Credit Review Office, in his eighth quarterly report, has seen the light for the first time. He pointed at the banks, saying that he was “disappointed that there is not more evidence of support for ‘enterprise risk taking’ on new and increased lending in the banks’ current lending policies. This would suggest that their current risk appetite needs to be reassessed in order to support economic and employment recovery”. It appears, therefore, that the banks are funding existing companies but are terrified to act in an entrepreneurial manner. Unless we can support new companies with finance they will not create employment.
The latest assessment from ISME is even more forthright and makes for disquieting reading. ISME claims that the banks are hindering recovery, with 54% of credit applications refused by bailed out banks in the last three months alone. Its survey found that 82% of the businesses which applied for funding believe the banks are making it more difficult for them to access finance. The survey also indicates that 96% of business owners believe the Government had either a negative or no impact on SME lending. I acknowledge this does not apply to the Minister of State, who is doing his best to address the issue, but the ISME survey confirms what many of us suspect from our dealings with the SME sector, namely, that the banks are not lending.
A Central Bank paper found that €1.6 billion was issued in new loans to the SME sector in first nine months of 2011. However, the banks also removed €2.4 billion by closing credit facilities. Overall, lending to the SME sector was down by €800 million. This is the environment in which the present Bill is being considered by the Oireachtas. The banks which lent too much in the past now lend too little.
The Fianna Fáil Party is not opposing the Bill notwithstanding certain reservations we have about it. My colleagues in the Dáil argued that the Bill was somewhat restrictive, especially in comparison with other countries. It is also coming late compared to other countries. The intention of the Bill is to provide a 75% guarantee to banks against losses on qualifying loans to job creating firms. Up to €150 million is to be guaranteed annually. The Government has indicated that the net Exchequer cost for an annual portfolio of €150 million of guaranteed lending is approximately €6.38 million and that the benefits forecast to arise from this intervention in each year of operation, assuming €150 million in additional lending, include the creation of more than 1,000 jobs, more than €25 million of Exchequer benefits in tax revenue and welfare cost savings and a 398% return on the State’s investment. In other words the cost-benefit ratio will be approximately 4:1. By any standards that would be a remarkable return.
Why are we capping it at €150 million, however? The Small Firms Association, SFA, estimates that the fund will benefit a mere 1,800 businesses and has asked the Government to commit to meeting in full the demand for guarantee funding from small businesses by removing the funding cap from the Bill. I am sympathetic to this position because if the prospective return on the Government’s outlay is so fantastic return we should at least set a higher cap. If, for example, the Government’s outlay was increased fourfold to €27.4 million, more than €100 million of Exchequer benefits in tax revenue and welfare savings would ensue. That would be a handsome benefit at a time when budgets are tight. I understand that the cap may have been the price for getting the scheme off the ground and I presume it originates from the Department of Finance. If that is the case I hope the Minister of State will put pressure on that Department to review the cap if the demand greatly exceeds it. By this means it would truly be a demand led scheme. The SFA also drew attention to the 2% annual risk premium. This could well pose further cash flow problems for small businesses and should be modified. The SFA suggests that the premium should be paid in instalments at the same time as the full loan repayments are being made.
I understand the Minister of State sees the Bill as a means of providing additional lending rather than a substitute for existing lending. How is this to be policed and what is to stop the banks from using the scheme to guarantee lending they might have provided anyway? I am anxious to hear how this will work. The banks have broken the country and were bailed out by the taxpayer. The burden is enormous and the actions of the banks have done nothing to alleviate it. Any attempt by the banks to use this scheme to reduce lending must be strenuously resisted.
I welcome the Bill with reservations. Whatever its limitations we must give it a chance to work and I hope it can deliver the benefits predicted for it. If these benefits materialise I will be calling on the Government to expand the scheme. The major challenge facing the country is the unemployment crisis, with one in five people on the live register. We rely on the private sector, entrepreneurs and go getters to lift the gloom. It is up to us to provide the right environment for enterprise to flourish and, limited as it is, this Bill is a step in the right direction.
Caít Keane (Fine Gael)
I join Senator White in commending the Minister of State on the work he has done to date. I welcome this Bill for providing a targeted temporary partial credit guarantee scheme aimed specifically at small and medium enterprises. The Bill also identifies SME sectors which have insufficient collateral for traditional loan arrangements and which operate in areas with which the banks are not familiar. We are all aware of the need for credit among small businesses and the Bill is one of a number of initiatives the Government has introduced in the context of the action plan for jobs. The action plan outlined improvements that would support job creating enterprises and sought to support small indigenous companies and potential entrepreneurs, identify the obstacles that were in their way and find ways for the State to facilitate their job creation potential.
SMEs are the life blood for this country. We hear a lot about multinationals but SMEs operate in every town and village the length and breadth of this country. They form the majority of businesses across the State, whether in manufacturing, services or support to foreign direct investment. Growth in the SME sector will lift this country from the difficulties it is experiencing at present and contribute to the much needed growth targets that are required to get the economy back on track. We cannot focus solely on multinationals because we must also realise the benefits offered by small and medium indigenous enterprises. The biggest obstacle that small businesses face is the lack of access to credit. The introduction of the scheme outlined in this Bill will contribute to alleviating the pressures on viable businesses which have potential for growth and job creation but face difficulties in gaining credit.
The two main reasons for credit refusal are a lack of collateral and the shortage of expertise in the banking sector. As Senator White noted, our banks have become too soft and risk averse. I commend the Senator for establishing a small business at a time when it was not fashionable to do so. The banks have become too dependent on what were once guaranteed returns from property. It was too easy for the banks during the property bubble and they neglected the opportunity to develop expertise and an understanding of their customers’ needs in terms of developing new business models and products. This issue is particularly important for new and expanding companies engaged in sectors such as technology. Banks should develop the competency to evaluate growth potential in new technology companies. The banks lack understanding of the market opportunities available to these companies. If a company’s accounts do not show X euro in credit at a particular time, the bank is not skilled in assessing its potential.
The credit guarantee can support these businesses and help the banks in their learning process by encouraging them to understand the businesses to which they lend. The State will provide a 75% guarantee to banks against qualifying loans. Initially, the scheme will facilitate €150 million. Senator White sought a revaluation of that, which is provided for in the scheme. If it is working well, growing and has potential, perhaps the Minister will decide to expand it.
It is important to support business and I welcome the safeguard introduced by the Minister. When the State is guaranteeing something, it is important to insert safeguards. Section 9 of the Bill provides for the intervention of the Minister to withdraw the guarantee scheme if the lender fails or refuses to comply with the terms of the scheme. The Bill provides for a review of the scheme. The Bill provides for a three-year partial credit guarantee scheme. It is important for the small business sector for each of these years. It is important that lending takes place in addition to, rather than instead of, normal day to day practice. Senator White also referred to this, whereby the banks give with one hand and take back with another. I ask the Minister of State to keep an eye on this so that credit guarantee schemes currently in place are not hidden by the back door and replaced by this. He should ensure this is additional money.
The cost of lending during the three year lifetime of the Bill will be €19 million. This will be money well spent. The size and nature of the guarantee involved and the sums of money to be loaned are dwarfed by some of the guarantee facilities available in other EU countries. Reference is often made to our 12.5% corporation tax rate but, for example, Italy’s largest public guarantee fund guaranteed €4.6 billion worth of loans in the first six years of operation. Many OECD countries have similar programmes. For example, the guarantee in the Netherlands is up to 50%, with up to 75% available for start-ups and innovative companies; Belgium and the United Kingdom offer 75%, the same guarantee provided for in the Bill; and in Germany up to 80% is guaranteed, with the average between 50% and 80%. It is worth noting that the Bill provides a guarantee for a duration of three years, as opposed to the lifetime of the loan. Any time our corporation tax rate is mentioned, we can say that other countries have initiatives to ensure businesses are attracted to their countries. This is somewhat shorter than those on offer elsewhere. In the Netherlands the guarantee is for a maximum of six years, or 12 years if real estate is involved. We know where real estate is going in this country. In Denmark and Belgium, the guarantee is for up to ten years and in Germany it is up to 15 years.
These important provisions will ensure that a close eye is kept on this scheme. Ireland is not alone in being the only country across Europe to introduce such schemes. The UK, Germany and Italy all have various experiences and it is important that Ireland has such a scheme as it will be of benefit to Irish SMEs competing against others that have such support. In the absence of credit flowing into small businesses, this economy will not recover, as has been acknowledged time and time again. It is important to ensure viable businesses that have a credible business plan and can get much needed credit. It is encouraging to know the Irish Banking Federation’s response to the publication of this Bill suggests it is fully committed to its application in supporting the SME sector. The Bill has also been supported by Chambers Ireland, the Irish Small and Medium Enterprises Association, and the Institute of Certified Public Accountants in Ireland. They all acknowledge the Bill as a necessary part of facilitating small and medium enterprises in providing a much needed credit line.
Of the 1.8 million people working in the Irish economy, more than 900,000 are working in the SME sector. The SME sector is a significant contributor. I tried to research the number of women in SMEs but I could not find figures. The Irish Women in Business network came to the House last week. In March 2011, the EU Commissioner Viviane Reding, called for a pledge on women on boards, women in business and entrepreneurial women. She asked for companies to come to a voluntary agreement that, by 2015, 30% of board members will be women and 40% by 2020. I would like to see Ireland going down that route. We should also ensure banks facilitate women entrepreneurs. Quotas are important but I do not like them and neither does Ireland. I went for them in politics but I would not like to have to go for them in business. Norway has a quota for women in business resulting in 42% of board members being women. We must consider this.
Feargal Quinn (Independent)
I welcome the Minister of State and the Bill. I am delighted the Minister of State, who has responsibility for SMEs, is taking the Bill. Over recent years I went around the country visiting retailers and others and discovered an assumption that they could not get a loan. In the first few years, I found that if they put forward a strong proposal, money was available and it could be granted. People had talked themselves into assuming they could not get a loan. In recent times, it has tightened up a great deal. In the past three months, 54% of credit applications were refused but the original reports were much better. It seems there has been a deterioration.
The Minister of State has already heard ideas on helping SMEs such as longer banking hours, a mobile telephone app to help with applying for a loan or addressing the fact that SMEs do not know which person in larger branches of the banks is dealing with the accounts. A dedicated person should be appointed to SME accounts in each branch in order to build trust between the business and the bank.
There could be one common application form common to all banks. This would streamline the process and reduce accountancy costs. Is the Minister of State considering that?
John Perry (Sligo-North Leitrim, Fine Gael) Link to this
That has been introduced in Bank of Ireland, AIB and Ulster Bank. The simplified application form was launched two months ago.
Feargal Quinn (Independent) Link to this
I was not aware of that. I would like to take credit for it even if I am two months late. I draw attention of the Minister of State to the US small business innovation research, SBIR, scheme. I think we could learn from it. It came into being in 1982 and obliges all US federal agencies to set aside a small percentage of research projects to procure research from SMEs. It particularly helps the high-tech industry, which the US Government talks so much about. The SBIR programme has developed more than $21 billion of research since 1982 by more than 15,000 firms, resulting in more than 45,000 patents. The programme founder, Rowland Tibbetts, said the purpose is to “provide funding for some of the best early-stage innovation ideas – ideas that, however promising, are still too high risk for private investors, including venture capital firms”. For the purpose of the SBIR programme, small business is defined as a for-profit business with fewer than 500 employees. That is a large business Ireland. The Government could make a difference by pledging a percentage of money in this area. A similar model operated in the United Kingdom for a period and we could adopt similar legislation. The UK plans to introduce an SME champion in every Government department to check whether its procurement processes are appropriate for small businesses and smaller suppliers and to introduce mechanisms to speed up payment to SMEs. The US system, where SMEs must gain a percentage of budgets, could be of real benefit to SMEs. Has the Minister of State heard of this model and will he consider it?
Crowd funding is an interesting term. What is the Minister doing in terms of crowd funding to allow more businesses access to credit? Many people are willing to invest venture capital but they are unaware a certain company exists. We should consider the concept of crowd funding in order to solve this. Social networks of investors lend millions of euro in loans to entrepreneurs and small businesses. The business is worth €2 billion in the US. An entrepreneur makes use of online communities to solicit pledges of small amounts of money from individuals, who are typically not professional financiers. They have some money to invest but they do not know where to find the opportunity. They can now do so with social media. We can also think of this in terms of the Irish diaspora. They may have money to pledge but they do not know of an SME or start-up company in Ireland looking for finance. Many start-ups and venture capitalists have successfully connected through the system and it is worthwhile considering.
In other words, I am not stuck rigidly to what the Minister is trying to do but we support it. I have listened to what Senator White has said and to the remarks of Senator Keane as well. Clearly, we would prefer to see these measures on a greater scale but there is almost a need to convince people that they can get money if they do it correctly. We must help them to make the application and, then with the benefit of this finance, we can help them to take the first step on the way. I believe it is a worthy Bill and I am pleased to support it.
Jimmy Harte (Labour)
I welcome the Minister of State to the House. I realise he has a passion for small business. His portfolio will give him great satisfaction if we can produce the necessary jobs in the country. Small and medium-sized enterprises have been the lifeblood of the economy and they will be the saviour of the economy in future. As Senator Keane noted, up to 900,000 people operate in the SME sector. Almost every family in the country has someone involved in SMEs at some level. They are adding value to their products and providing employment and credit for people who are finding the going tough at times. They are acting in the place of the banks in some cases and they are taking a greater risk than the banks because those involved are keen to hold on to their businesses. The last people to give up on their businesses in this country will be those with small family-run businesses. These people will be prepared to fight tooth and nail to hold on to what they have built up over generations and we cannot afford to lose that ethos.
I congratulate the Minister of State and the Government on bringing forward the Credit Guarantee Bill. Recently, I met a young couple who sought to change their mortgage and move to a smaller property. Their current mortgage is almost up and they have a faultless credit history. The fact that one was working full-time but the other was working only part-time meant the bank refused the loan. The young couple who bought the property were planning to put in a new kitchen, new furniture and to improve the house they were planning to leave and the people who would have bought it would have done the same. There is a knock-on effect; it is not simply the case that the bank would not lend one mortgage. The decision stopped one couple spending because they had savings that they wanted to spend on the next property. Only when the credit sector starts moving and the banks begin to give credit to young couples, who want to move house, buy furniture, improve the garden or put in an extension, will we be able to help SMEs and then SMEs, in turn, will pass on their profits somewhere else.
It is like the engine of a car and we are starving it of oil. A credit guarantee is important to get businesses that are viable off the ground and to keep them going. The Minister of State indicated that it was no guarantee for people who are not making money; it is really only for those who can. Earlier, the banks moved from risk lending. They followed the United Kingdom model and went into house purchases and fees. There is little risk involved in that model. The clients of the bank are charged every month for using an account and they can be charged up to 20% for using an overdraft. Then, when they are behind the counter they can be sold house, life and motor insurance. The banks were travelling down the road of low risk until they were caught in the property bubble. Then, they got greedy because they thought it was easy and they did not believe they had to take any risk. It was easier to lend €1 million for a residential property rather than lend €1 million to a small business that would create jobs. The banks have been found out as a result.
We are in a position where we need the banks to buy into this and the efforts of the Government should be commended in this regard. I have spoken to people at various levels in various bank branches. They have indicated that they are constrained by their head offices. They fill in forms from when they come in at 9 a.m. and they are obliged to tick boxes all day until they leave in the evening. In the meantime, if a loan query comes through they must ring someone in London, Edinburgh or outside the country to get approval. The banks are reluctant to lend money because they want to get back into the fee business. They want to get clients back in the door to sell them insurance and charge them for using the accounts. No one hears of free banking any more because the banks are determined to get the money off their clients one way or another.
The Credit Review Office is doing a great job. According to Mr. Trethowan, up to 50% of refusals are overturned on his advice. I have stated previously in the House that perhaps someone should go to the Credit Review Office before they are refused by the bank to get some advice initially from the office. It appears to be more switched on to the needs of small businesses than the banks. If the banks had their way, they would lend no money to small businesses because they believe there is risk involved. Mr. Trethowan appears to have debunked that theory and his analysis is correct. The banks are prepared to knock young businesses off their perch and suggest that those involved are incapable of repaying borrowed money. It is possible that such people will simply give up. Other small businesses trying to survive might be encouraged to try again but it takes a great deal of effort and guts to go back to the bank through the Credit Review Office and make the case that the bank simply did not believe the analysis of the business owners. Many small businesses are giving up because they are afraid.
I am unsure whether there is a facility whereby an SME can speak to John Trethowan before going to the bank. They may not need a full scale analysis but perhaps a basic analysis. The office may be able to indicate that those in the business are wasting their time and that they should not go to the bank without giving a total commitment. At the moment businesses are approaching their local banks and are being refused money. Subsequently, the Credit Review Office may return with a different opinion. I believe people are afraid to go to the Credit Review Office because they have gone through so much with their banks and accountants and they may be struggling to survive.
John Perry (Sligo-North Leitrim, Fine Gael)
They should make contact with it.
Jimmy Harte (Labour)
The first thing those running a business want is to open on Monday morning and then to have enough money on a Friday evening to pay the wages. This is the greatest concern for any small business at the moment. It is difficult to go through banking procedures and the Credit Review Office and spend a great deal of time and stress on that issue.
John Perry (Sligo-North Leitrim, Fine Gael)
It is torture.
Jimmy Harte (Labour)
Anyone operating a small business knows how difficult it is to go to the bank for anything at the moment. I call on the banks to streamline their application systems and to have people doing less paper work and to spend more time meeting small business owners on their premises. They would get a better feel for the business rather than examining a spreadsheet, which might tell them a good deal but it will not tell them about the staff in the business, how long the business has been in the area and how important it is to an area.
Some small businesses have been in place for generations. They will survive through the recession and provide jobs at the end of it but the banks have to get real. I have never heard a small business man declare that the banks have carried out a review of his business and decided to lend him more money. More usually, they come out to try to get the business to pay more money or to put pressure on it. There is an opportunity, however, through the credit guarantee scheme to give small businesses a leg-up. It is important whether for a county like Donegal or a city like Dublin that credit is available. Otherwise things come to a halt. We cannot depend on foreign direct investment to turn around the economy. Local people have done it in the past, including the shopkeepers, publicans and small businesses and these people will do it again. I commend the Minister of State on his work in this area.
Trevor Ó Clochartaigh (Sinn Fein)
Cuirim céad fáilte roimh an Aire Stáit agus is deas an rud a bheith ag plé seo. Má bhreathnaíonn muid ar an bpictiúr níos leithne ó thaobh na heacnamaíochta de, tá sé soiléir, nuair a fheiceann muid go bhfuil fás beag ag teacht ar an GDP, go bhfuil an GNP ina steillbheatha. Cuid mhaith den rud atá ag tarlú sa tír seo ná nach bhfuil na gnóthaí beaga in ann feidhmiú. Cuireann Sinn Féin an milleán do go leor de seo ar na polasaithe déine atá tugtha isteach, ar na buiséid éagsúla a tugadh isteach ag na Rialtais a tháinig roimhe seo agus ar an Rialtas féin, mar gheall nach bhfuil airgead ina bpócaí ag daoine agus ní féidir leo, dá bhrí sin, a bheith ag ceannach sna siopaí agus sna haonaid beaga miondíola agus mar sin de. Sin ráite, tá baint mór ag cúrsaí creidmheasa sna bainc le seo chomh maith. Cé go bhfáiltíonn muid roimh an Bille seo, ní dóigh linn go dtéann sé sách fada. Ach is fearr ann é ná gan a bheith ann. Even though this Government and the previous Government were able to find lots of money to bail out the banks, both Administrations were very slow to put pressure on the banks to make credit available to businesses.
Sinn Féin cautiously welcomes this Bill as being of some help to struggling SMEs, but it needs to be complemented by a whole raft of other measures if it is to have any effect. Six businesses close each day in Ireland, far more than are opening. This is the clearest evidence anybody would need to show how we are living in a shrinking economy. The Government has chosen the path of austerity and of shrinking the economy. This is failing and small businesses are feeling that failure more than most, which is the context in which we are examining this modest proposal.
I note that in places like Clifden in Connemara, where I am from, some 50% of retail outlets on the main streets have closed in recent years as a result of the economic decline and the failed policies that have been brought in. Were we in government, our approach would have been to be more aggressive, using the State’s stake in AIB and Bank of Ireland to compel them to get on with lending to SMEs and to others who are critical to the functioning of the real economy. The banks are still too focused on lending to the construction industry. These banks have received massive bailouts and also received low interest loans from the ECB, yet they are not passing on the credit to SMEs.
This Bill is overdue. Such schemes operate in 100 countries worldwide and have operated in the north of the country since the 1980s. The Bill is enabling legislation and leaves a great deal of discretion to the Minister in terms of the critical nitty-gritty. We would say the Minister will certainly need to wield any power he has over those banks to ensure credit is made available. We also note the lack of ambition in the Bill which is obvious from the fact it is predicted that only 2% to 4% of SMEs will benefit even though the Irish SME body’s survey shows that up to 50% of its members have been refused credit recently. We would hope to see that percentage increased.
We welcome the fact loans will be limited to smaller businesses with fewer than 250 employees. This makes sense as bigger enterprises could soon soak up what moneys are available and they are better placed to avail of traditional loans.
The 2% charge on the borrower contained in section 8 has the potential to undermine many of the other positive aspects. Sinn Féin will consider trying to remove this unfair charge through an amendment at a later stage. We will also consider the possibility of proposing that the Bill be amended to compel the Minister to lay before the Oireachtas an annual report on the impact of the Bill. There is potentially a large amount of public money involved here and democratic scrutiny of that money should be part of the Bill. There is also the issue of who is liable when there is default on one of these loans. We propose that the recovery of money or assets should reflect the level of guarantee shared between the lender and the Minister.
Although parts of the parts of the Bill are to be welcomed, we feel it does not go far enough. It also needs to be taken in the context of the wider economic situation in this country, which we feel is failing. The jobs initiative is not yielding the jobs it promised and the austerity measures that are being imposed, particularly on the middle and lower income earners in this State, are a huge additional factor in the problems SMEs have. Measures such as increasing the cost of fuel in the budget have had massive impact on small businesses which transport goods or are, for example, dependent on salespeople travelling about the country, and this is all adding to the bottom line. Such measures are completely detrimental to supporting SMEs.
Beidh Sinn Féin ag tabhairt isteach roinnt leasuithe ag Céim an Choiste den Bhille seo, ach ní bheidh muid ag cur i gcoinne an Bhille ag an bpointe seo.
Fidelma Healy Eames (Fine Gael)
The Minister is welcome. This is one of the most positive moves we have had for a good while in terms of helping SMEs. The Bill will help small businesses across the country to access credit and create jobs. Let us face it, the pillar banks have let down SMEs. Despite the fact they have been capitalised with that purpose in mind, we know there is not enough evidence of them doing it. What they have been doing, in fact, is inviting people in and converting their overdrafts into term loans, thus cutting off the supply of credit.
I am delighted to welcome the Bill, which was published recently by the Minister of State, Deputy Perry, and the Minister, Deputy Bruton, and will make it easier for SMEs to access credit and thus create jobs. We know that access to credit is the biggest single challenge facing businesses across the country, SMEs in particular. Every week, I meet local business people in Galway who express their frustration and dismay at their inability to access credit from the banks. We know SMEs need a reliable stream of credit to function, particularly in the current trading environment, and this will assist in tackling the problem.
A number of years ago, I learned about an approach, for example, in Germany, whereby the government backs the business, not the bank. I have been watching this model for some time. I am delighted that we are considering this here and I believe that to back 75% of the loan requirement is fantastic. Unfortunately, once our banks come under pressure, they get nervous. Just when we need them, they let us down. Quite seriously, one would be inclined to say “What a useless bunch”. This is when we need them to show their mettle and to say “I see potential in your business. I believe in you, the person, and your reputation will be trusted”, but no, they have always had the reputation of calling in the loans or just refusing. Fair do’s to the Government. I know Senator Ó Clochartaigh is gone but I wish to God—–
Paddy Burke (Cathaoirleach of Seanad; Fine Gael)
We do not make reference to Senators who have left the House.
Fidelma Healy Eames (Fine Gael)
I am referring to a colleague in the House.
Paddy Burke (Cathaoirleach of Seanad; Fine Gael)
Yes. We do not make reference to somebody who leaves the House.
Fidelma Healy Eames (Fine Gael)
Gabh mo leithscéal. I would like to see Sinn Féin being positive when it comes to trying to invest in the economy and SMEs. I am somewhat outraged because, truly, we need to look at every measure that will help our SMEs continue, as Senator Harte said, to be the lifeblood of our economy.
I recently did an interview on this Bill in Galway and it was met with a lot of positivity. There are many positives to the Bill. It will help 1,800 businesses throughout the country and will facilitate an extra €115 million extra in lending per year, which, in turn, will put badly needed turnover into the economy. It will also help the banks get a bit of a lesson on who else they might be able to trust out there.
I am delighted with the company the Government has chosen to give the tender to because it has a great reputation. Capita Asset Services is part of Capita plc, which is a FTSE 100 company whose prime area business activity is the provision of business process outsourcing services. It currently employs over 1,200 staff in the Republic of Ireland and almost 1,800 across the island. I do not know it personally but, by the sound of it, the company has good experience in this area and will, hopefully, teach our banks a lesson or two in who to trust. Obviously, I would be the first to say we need to back viable propositions but, sometimes, people need to take a little bit of a risk as well. Let us face it, entrepreneurship is based on risk taking.
I have some questions for the Minister. First, if an SME is granted a loan under this scheme and then grows and requires more capital, can it apply for a second loan under this scheme? This should be clarified as growth of small businesses and the creation of jobs is the goal of the scheme, and to prevent growth of businesses would be a retrograde step. Second, could we clarify whether SMEs involved in horticulture, agriculture and fisheries are excluded from the scheme as they can also be small enterprises and SMEs in these industries also require help? Does the Minister of State have particular suggestions in this regard in the absence of them not being allowed into the scheme?
Third, will people who avail of this scheme be also able to avail of the upcoming microfinance loan fund or are they mutually exclusive? The fund, which will cap applicants at €25,000, will be very beneficial. I welcome the fact the Western Development Commission is providing €1 million of the money it has obtained from recycling loans for the very same purpose, namely, a microfinance loan fund through which it will give out loans to a maximum of €25,000. It is a positive move and it is not the end of the world. We should tell the banks, however, that we have had to do this because they did not step up to the plate. The banks should learn a lesson from this. It is great that the State is showing confidence in SMEs and valuing their importance by guaranteeing 75% of their loans. I presume that SMEs will get the guarantee from this company, then go to the bank and get the money. Is that how it will work?
Marc MacSharry (Fianna Fail)
I welcome the Minister of State to the House. I also welcome the Bill which is long overdue. It was in the programme for Government and it was announced three or four times over the last year, so it is good to see it finally before us. It was promised in May 2011 and was announced a few times after that also by the Minister, Deputy Bruton, and the Minister of State. It is good to see it has finally been published. Nonetheless, I have a few concerns about it. The Bill gives authority to the Minister to establish a credit guarantee scheme. In addition, there is some basic information on what the scheme might involve in terms of €450 million per year and 75% loans. However, what will the underwriting criteria be and whose criteria will be applied? Who will the underwriters be? Are they the same people who are underwriting the banks at the moment, who are taking a very literal approach to ticking boxes in terms of what can or cannot stand up?
One of the many downsides of the financial crisis in which we all find ourselves, is that so many people have gone out of business or bankrupt and so the risk-takers are out of the picture. The people who naturally take risks which can lead to successful companies and employment creation are somewhat out of the game. From a banking perspective, having prohibitive underwriting standards and conditions is like shutting the stable door after the horse has bolted. I may go to a bank with an idea that I feel can work, create jobs and be successful but the underwriting criteria being used by banks to assess such ideas are too stringent. Underwriters should probably have taken a stricter approach over the last 15 years when a lot of the problems were caused. I am not sure, however, that taking such a strict approach now will nurture the natural innovative genes of entrepreneurs who are trying to get business ideas off the ground. I have concerns about that approach.
Most banks have centralised underwriting so the local knowledge of senior lending managers of Ulster Bank in Ballymote – the Minister of State’s own town – or in Sligo, Wexford or elsewhere, is not taken into account as much as it was in the past.
Of course we need more stringent guidelines and need to be prudent and not throw money around, but equally we are just taking a clinical approach to lending. If one ticks the boxes one gets the money, but that approach is not adequate given what is needed at the moment. Money will have to be loaned to ideas that will fail in order to achieve a percentage of successful ones. Ignoring local knowledge and expertise is not the way forward. In putting together details of the scheme, I ask the Minister of State to adequately address underwriting, which does not just tick boxes but which also takes into account local factors and knowledge that will contribute to the success or failure of a business idea.
The commitment of pillar banks to lend €3.5 billion or €4 billion specifically looks to existing business and safe bets, including extending a local authority’s overdraft or financing blue-chip schemes. While that is of course necessary, I am not sure that in meeting those targets enough of that finance will go to risk takers. I am not talking about reckless lending, but we should ensure that the money gets to those ideas. Some of them may be crazy but if they are not backed they will not end up being successful. Can anyone imagine someone coming into a bank in Ballymote with the idea of setting up Facebook? If the banks were to apply their current box-ticking method of underwriting, there would be no hope of the John Perry Facebook idea getting off the ground.
Fidelma Healy Eames (Fine Gael)
It is a good thing we do not need money for that.
Marc MacSharry (Fianna Fail)
In my view that would be wrong. The Minister of State’s background is in small business and he fully appreciates my point of view. Let us get more information on how the scheme will be underwritten, who the underwriters will be and what assurances will be there. We must ensure that we are not just guaranteeing the banks to lend to more blue-chip companies, rather than capturing the spirit of what the Minister of State is trying to achieve, namely, to support risk-takers in creating more employment and getting credit flowing.
I do not feel a 2% levy is necessary. It should certainly be linked to a company’s profitability as opposed to an annual 2% charge to be levied on them, which is wrong. It is a bit like the banks having split mortgages but charging more money for the warehouse section, as we read in today’s newspapers, on the personal finance side of things.
When is the micro-finance loan scheme going to begin and how will it work? I agree with what Senator Healy Eames asked about whether companies can avail of both if necessary.
John Perry (Sligo-North Leitrim, Fine Gael)
For the Senator’s information, the Bill will be published tomorrow.
Marc MacSharry (Fianna Fail)
That is great news. If it is being published tomorrow, I suppose the Minister of State knows what it contains so he might give us a sneak preview of how it will work.
John Perry (Sligo-North Leitrim, Fine Gael)
Very successfully.
Marc MacSharry (Fianna Fail)
If somebody is lucky enough to avail of this scheme, can they also avail of the other one? I congratulate the Minister of State on his commitment to this area, which I do not doubt.
Denis Landy (Labour)
I welcome the Minister of State to the House. I have tracked his work activity since his ministerial appointment, and I have personal experience of it in my own area. I commend him for the work he has been doing. He has been totally engaged with this area and has identified that there is a gaping hole which the legislation aims to fill.
Approximately six months ago, during a debate on a Labour Party Private Members’ motion on small business, I asked the Minister of State to instruct both pillar banks to attend the Oireachtas and provide a presentation to us on their procedures, rules and regulations governing the provision of loans to small businesses. Through no fault of the Minister of State, that still has not happened so I am repeating the call now. I know that in recent weeks the Deputy Leader of the House wrote to the Minister of State about this. Day in and day out, I am facing constituents who have been refused loans. In recent weeks I had reason to provide some back-up support to a thriving business involved in the horse industry. The equine sector is facing difficulties at the moment but, while no pun is intended, it has a proven track record. Nonetheless that particular business was refused a loan.
John Perry (Sligo-North Leitrim, Fine Gael)
Perhaps it should appeal the decision.
Denis Landy (Labour)
I thank the Minister of State. We will do that but it is extremely frustrating for this to happen when people have rigorously put business plans together. There appears to be no thinking outside of the box in terms of the banks’ attitudes. This legislation provides new opportunities for people. I have a number of questions for the Minister of State.
How are start-up businesses who have no track record by virtue of the fact that they are new but whose owners may have track records from previous employment or life experiences to be treated? Currently people who have been unemployed for more than 15 months can participate in a back-to-work scheme while retaining their unemployment benefit, which is tapered off over three years by 50%, 75% and 100% respectively. Will these people who are trying to upskill and create employment be covered under this scheme? If so, it is important they are aware of that.
The level of funding available to county enterprise boards has been drastically reduced in recent years. These boards do a great deal of good work and provide mentoring for fledging businesses. They also encourage new business. Will those organisations be brought into the loop in terms of their being able to introduce SMEs to the new guarantee system? Senator Healy-Eames referred to the agriculture community, which sector, thankfully, is doing well. I live in rural Ireland. My next door neighbour is a dairy farmer. Young people involved in this sector want to expand.
Fidelma Healy Eames (Fine Gael)
They make their own cheese, etc.
Denis Landy (Labour)
And yoghurts and so on.
John Perry (Sligo-North Leitrim, Fine Gael)
The State aid rules apply.
Denis Landy (Labour)
Perhaps the Minister of State will elaborate further on that point in his concluding remarks. Further consideration needs to be given to that sector. I am sure the Minister of State is familiar with Kildalton Agricultural College, which is located only a couple of miles from where I live, albeit in County Kilkenny. It is massively over-subscribed in terms of applications for courses on an annual basis. As stated by Senator Healy Eames not only mainstream farming but side products of it are affected. Those involved should be cut some slack.
In terms of the current banking system, how will take up of the €3.5 billion available this year be monitored? ISME published its most recent quarterly report last Monday, which states that 54% of SME applicants were refused credit by the banks, which is phenomenal. There is breakdown in terms of what the Government wants to see happening with that funding and what is actually happening. We are half way through 2012. I am concerned that by the time we reach December no real amount will have been drawn down and that money will remain in the banks who will be saying those who applied for loans did not qualify. There is a need for clarity on this issue.
I welcome what the Minister of State is doing in terms of this legislation. Like everything else he is doing in his ministry in terms of getting people back to work, creating employment and thinking outside of the box, it is extremely positive. However, I plead with him to ensure the banks are brought before us so we can quiz them on this issue. We effectively own the banks and they should be answerable to us.
John Perry (Sligo-North Leitrim, Fine Gael)
I thank Senators White, Keane, Quinn, Harte, Ó Clochartaigh, MacSharry, Landy and Healy Eames for their contributions to this debate. I also thank my officials for their tireless work on this Bill. The Senators made some very interesting points.
This legislation will address some of the difficulties being faced every day by SMEs throughout the country, of which I have been made aware daily since my appointment last year as Minister of State with responsibility for small business. The ability of our SMEs to succeed and grow underpins the future potential for employment, growth and prosperity. This Bill underpins the Government’s commitment to implement change and reform taking a step-by-step approach.
While I appreciate Senator White’s point in regard to ISME’s survey in regard to the unavailability of finance, this legislation is only a start. A review of the legislation after 12 months will, it is hoped, indicate it has been a success. On Senator Quinn’s point, high potential US companies are doing an effective job within Enterprise Ireland. A key issue for Government is innovation procurement. I have looked at the idea of crowd funding, which is very successful in the US. On Senator White’s point in regard to a survey in terms of returns for investment, that will become clear once the guarantee has been established.
The purpose of this Bill is to re-energise the economy, meet the challenges of recovery, address a failed economic model, restore confidence and enhance Ireland’s position in the world. The Jobs Plan 2012 prioritises where Government efforts over the coming months should best be placed. It adds up to a co-ordinated plan of vigorous targeted action to achieve change and make a real difference. It is important we do make a difference. Businesses need action not words from Government. This legislation is clear evidence of concrete action which will produce tangible benefits for businesses who avail of the guarantee scheme.
Senator Harte made an important point in regard to the banks and the role of the Credit Review Office. I appeal to anyone who has been refused credit to first take up the matter with the banks and if not resolved to then take up the matter with the Credit Review Office, which has been successful. I welcome Senator Ó Clochartaigh’s remarks in regard to the Bill and the role of banks. The banks have been recapitalised to the tune of €7 billion. The Government is working with them. I will come back to Senator Landy on the matter of the banks appearing before the Oireachtas to familiarise Members on their role. The banks have been effectively recapitalised.
Senator Healy Eames made the important point that this Bill will potentially assist 1,800 companies and provides an opportunity for business to engage with the banks. I believe that those businesses which previously have not applied to the banks for credit will do so through this scheme. Th credit guarantee scheme, in conjunction with the microfinance loan fund, the legislation for which will be published tomorrow, are not a substitute for bank lending. The banks have been recapitalised. Banks need good business and businesses need banks.
Fidelma Healy Eames (Fine Gael)
That is correct.
John Perry (Sligo-North Leitrim, Fine Gael) Link to this
Banks are interested in making money. It is important they refocus on their role.
Fidelma Healy Eames (Fine Gael)
Will a business be able to get loans from both?
John Perry (Sligo-North Leitrim, Fine Gael)
The detail in that regard is not yet clear. However, I believe a business’s needs would be satisfied by one loan. The domestic banks rely on successful businesses. Senator Keane’s concerns will be addressed on Committee Stage. Business is about confidence. The Government has enormous understanding, concern and respect for the 200,000 companies in the Irish economy that employ up to 655,000 people. There has been much detailed work on this scheme. My officials worked tirelessly on this Bill. Getting it this far has been a torturous task. The pillar banks have a particular role to play in this area. With regard to Senator Quinn’s point, alternative funding mechanisms such as crowd financing exist and these can be effective. This is just one suite of measures we can potentially implement. I have noted a range of comments from all sides of the House and I listened very actively. I will consider them in advance of Committee Stage. Some of the points were raised previously with regard to the charge, review and scheme. We will take on board the points which were well made today.
The Bill will help to restore confidence, which is an integral part of economic health. It will also form an essential part of our recovery. Business must develop sufficient confidence in the future to begin expanding order books and payrolls. This is about creating jobs and the role of small enterprise. The best examples in other European countries show it has been successfully operated. In this country First-Step is a good example. Recently, I attended an event also attended by companies which had been refused credit. Instead they were funded by First-Step and have been very successful since. Banks must again be willing and able to lend sufficiently to meet the needs of business. Consumers must regain the confidence to spend again. People must buy to support small companies which are the backbone of the economy and the engine of growth. Our overall strategy is aimed at ensuring our citizens and businesses feel confident we have their interests at heart and that we are implementing necessary change. The Government is concerned about, respects and will give service to small companies because we believe they are the engine of growth.
Senator Keane made a point about women in business and we are very much taking this issue on board. We have attended a number of events which recognise this with regard to the BRIC and European networks. Behind most successful businesses is a great lady and I subscribe to this view.
Mary White (Fianna Fail)
The Minister of State is very gallant.
Fidelma Healy Eames (Fine Gael)
He knows on what side his bread is buttered.
Caít Keane (Fine Gael)
Or who butters his bread for him.
John Perry (Sligo-North Leitrim, Fine Gael)
When it comes to credit control they are hard to beat.
We must ensure we have an outlet for entrepreneurial initiative. It is about the marketability of ideas and the chance to turn them into commercial products. Ensuring entrepreneurs are confident about going into business and creating jobs is an essential element of government. Ensuring Ireland is strongly perceived as a good place to do business is essential to generating this confidence. We are committed to making Ireland the best small country in the world in which to do business by 2016. The Taoiseach is very committed to this and we are reducing the regulatory burden on business and cutting down the red tape, which is very important. Access to credit is also important as is the recognition of employers.
The Government has a legitimate and important role in improving the financial environment for small and medium enterprises. Carefully designed legislative intervention such as this can help the market function better and gives certainty to businesses and confidence to consumers. The legislation will inspire confidence among small and medium enterprises in the banks’ ability to provide an improved service to them as customers, including those who were previously discouraged from borrowing. The Taoiseach has held the banks to account. He has met the two pillar banks and I believe a simplified application form has been created. Where someone has been refused credit the code of conduct means an internal review can be done and Mr. Trethowan’s office has overturned 50% of the appeals it has received. I strongly recommend people avail of this service. I also encourage people to make applications and if they are refused not to be intimidated and to appeal it to Mr. Trethowan’s office. It has been frequently acknowledged that in the recent past a cohort of discouraged borrowers assumed they would be turned down and therefore did not apply for credit. These are the people we want to encourage to make applications. The introduction of a guarantee scheme may help to support this group to pursue business opportunities again.
The majority of our enterprise sector comprises small business. Now more than ever we need ambitious and energetic business owners, entrepreneurs and managers who can play a real part in driving a positive uplift in the economy. Senator White said a former Minister stated if 50,000 companies created one extra job each at little or no cost to the State it would have a huge impact. It would be a huge win-win for the Government. We can encourage people and give them ten reasons to create a job and this is what the Government wants to do. All too often the risk takers and innovators remain unseen and the hard work and entrepreneurial skills of these individuals lie at the heart of the success of our small and medium enterprises. All of these companies have financing needs during the various stages of business development.
A point was made about encouraging people on welfare to start a business. There is no reason unemployed people who have an innovative idea should not be supported. It is about having a simplified business plan that will stack up. Obviously the banks will not give money to something that will fail and the risk is twice as high in recessionary times. I believe simplified mentoring support and the role of the county enterprise boards will be important. The Government plans to roll out one-stop shops for businesses and I have no doubt this will be part of the facilitation. People will have the opportunity to work with banks and mentors. Mentoring has been very successful with companies in the past and it will be needed now more than ever. We have many successful business people who are determined to give something back and mentor a company at no charge. I appeal to these people to do so.
Along with starting up, other stages of business development at which financial needs arise are managing working capital, investing in new products and services, the commercialisation of knowledge, marketing strategies, innovation, research and development and expanding output. It is essential that the financial system supports the needs of our small and medium enterprises through the stages. Many businesses have contacted me about the problems caused by the difficulties in accessing credit. Increased risk aversion among banks has made it significantly more difficult for smaller companies to obtain finance in recent years compared to before the crisis. However, it is not all about obtaining money; it is about having a plan of action and sitting down with one’s mentor and accountant to work on the management accounts and the monthly accounts which will show the profit and loss.
People have a responsibility to go through a simplified but effective application for lending. It is about engaging with the banks, which have indicated to me they are prepared to nominate a commercial liaison member of staff who would know the business. The banks are also considering visiting customers at their business which is also very important. Herein lies the mismatch between the needs of a productive business and the bank finance available. Banks are trying to reduce risk but business lending, particularly to small and medium enterprises, is risky. Entrepreneurship is risky but, as is said, no problem, no business. There are always problems in business but Irish people have been very successful in the past when difficulties have arisen. The suite of services, including the roll-out of the one-stop shops later this year, recognises the critical role of small and medium enterprises in the Irish economy and the Government is committed to it. The Minister, Deputy Bruton, and all of the team in the Department is working in every way we can on legislation with regard to procurement, reducing the amount of red tape, access to credit and engaging with the banks. Senator Landy is correct that it is very important to engage with the banks and we will discuss with them how best to arrange it.
Fidelma Healy Eames (Fine Gael)
Will the banks come to the Seanad Chamber or the AV room?
Denis Landy (Labour)
The AV room.
John Perry (Sligo-North Leitrim, Fine Gael)
Introducing new products and services, exporting to emerging markets and innovation are all risky. The Bill will enable the Government to absorb some of the risks of lending to businesses so they can get on with what they do best. We must dismantle unnecessary barriers which stymie growth and hold back investment. This is what the Government is determined to do and the Bill moves in this direction.
Access to credit is crucial and consulting on the issue with business has been a major priority for me. In conjunction with the Department of Finance I held a series of regional meetings to discuss access to credit with key stakeholders. The meetings allowed Mr. John Moran, the Secretary General of the Department of Finance, to hear first-hand the views and experiences of local business representatives, bank representatives and State agencies. These meetings ensured Government policy on credit and small and medium enterprises are based on as much information as possible. I met various companies on the margins of decisions on commercial lending to small and medium enterprises because they had insufficient security or the lender did not have the skills to carry out an appropriate assessment of the business. It is essential to address this issue in a way that will not reduce the onus on banks to honour their commitments to increase overall lending to the small and medium enterprise, SME, sector but which would facilitate additional lending, over and above those commitments.
In conclusion, this Bill is important legislation that will be of assistance in the Government’s plans to reshape the financial landscape in order that it is more effective in meeting the needs of Irish business. The Government is taking decisive action to create the environment that will support new companies, new jobs and new economic opportunities. Such action keeps open the doors of Irish business, supports existing businesses to scale up and expand and facilitates more people, who have the ambition and drive, to set up their own businesses. This Bill is just one of the many steps for delivery on such a challenging agenda.
Question put and agreed to.
Paddy Burke (Cathaoirleach of Seanad; Fine Gael)
When is it proposed to take Committee Stage?
Caít Keane (Fine Gael)
Next Thursday, from 11.45 a.m. to 2 p.m.
Paddy Burke (Cathaoirleach of Seanad; Fine Gael)
Is that agreed? Agreed.
Source: KildareStreet.com – Horticulture Exempt from Credit Guarantee Bill 2012
