Irish banks are lending again. Seriously! I have the proof. Two clients who had both applied for loans to expand their business through franchising have just been approved. In fact, the money is in their account already. The process was slow and involved more paperwork than they expected, but the effort was worth it. They’re now up and running. Both clients are experienced in the food and beverage industry and both have a good track record, which no doubt helped.
Banks providing credit to customers shouldn’t be something I need to shout about: it’s what they are in business to do. Unfortunately since the economic downturn they haven’t had much money to lend. One swallow doesn’t make a summer but I take this news as an encouraging sign that the tide might be turning.
We’ll certainly see a difference when the government’s loan guarantee scheme comes into operation towards the end of the year. November has been mentioned as the start date. Initially, the scheme will facilitate up to €150 million of additional lending a year to SMEs. The banks will administer the scheme but the state will give them a 75% guarantee against losses on qualifying loans to firms with growth and job creation potential.
Details have yet to be announced, but it is expected that banks will be able to loan from €10,000 to €250,000 (and up to €1 million in special circumstances) knowing that if the business goes pear shaped they are exposed to only 25% of the funds advanced. We don’t know yet just how much the borrower will be required to contribute but expect a minimum 10% of the overall cash requirement.
The scheme is certain to give a much needed boost to the franchise industry which has traditionally relied on banks to part fund new investors. Potential franchisees should meet the requirements provided they are in good standing and can present a credible business plan.
The guarantee is not without cost: the borrower will have to pay an annual premium of 2% on the outstanding balance of the loan, assessed and collected annually in advance. A qualifying enterprise must not employ more than 250 people. The food and drinks sector will be eligible for the scheme, but there are exclusions including primary production in agriculture, horticulture and fisheries. The money can’t be used to refinance existing debts and overdrafts and property-related activities.
Roll on November!