Ireland state-backed investment bank to fund SMEs

A new state-backed banking initiative will offer SMEs in Ireland loans at discount prices.

In a bid to kick-start lending to small and medium-sized enterprises (SMEs) the new state-backed Strategic Banking Corporation of Ireland (SCBI) aims to provide funds at a discount to current market rates.

SCBI says it has €800 million of funds available to SMEs that are looking to invest in and grow their business. Up to €400 million will be channeled into the sector now through AIB and the Bank of Ireland, while the other half will be available later in the year, and includes €250m from the former National Pension Reserve Fund, as well as money from the European Investment Bank and German national development bank KfW.

The interest rate on the funds has been confirmed to be set at 4.5 per cent per annum variable, which is approximately two percentage points cheaper than current lending in the marketplace.

AIB has also confirmed plans to reduce the loan rates on its standard variable business loan to 4.5 per cent, stating that it intended to match the discount of one per cent it was receiving from the SCBI to bring the loans down by two percentage points overall.

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,’’ Mr Noonan said.

It means that a standard business loan of €5 million, with a maturity of five years, will be cost the borrower approximately €15,000 to €20,000 less than at the current market rate over the lifetime of the loan.