The Institute of Certified Public Accountants in Ireland (CPA) today welcomed the announcement by the Minister of Enterprise Trade & Employment that she is to bring forward a proposal to a Cabinet sub-committee that would see the State guarantee funds lent by banks to small businesses.

While details have yet to be finalised, we understand that the Minister and her officials are examining the Fogape Scheme which has proven very successful in Chile. Fogape is a state fund which partially guarantees credit issued mainly by commercial banks to small and microfirms. The fund is managed by Banco Estado, the state-owned commercial bank, who auctions the guarantee among commercial banks and other financial institutions, and decides whether the guarantee is paid when the borrower defaults.

Mr. John White, President of the Institute of Certified Public Accountants said;
“It has been clear for some time that the SME sector in Ireland is being stymied by a lack of funding from the banking sector. It is also obvious that this situation will not improve in the short term.

“The transfer of bad loans from our banks to NAMA will reveal the true extent of balance sheet weaknesses in the banks and they will most likely require further capital injections from Government., Even after this investment, Irish banks will remain weak and so the hope that normal levels of credit being released to the SME sector in the short term is unlikely.

“Therefore it is critical for the SME sector that the Cabinet sub-committee on economic renewal completes its report as a matter of urgency and that proposals are fast tracked to full Cabinet consideration and to action”.

Mr. White said that the structure of the state guarantee scheme for loans to SME must be to support viable new businesses and the growth of existing businesses in the SME sector.

“The tax payer is already footing the bill for the banks irresponsible property based lending practices. This scheme is critical to kick-starting growth among SME’s who cannot secure bank funding. But it cannot become a scheme which is abused by the banks and allows them to substitute private collateral for a public guarantee”.

“CPA Ireland has strongly advocated on the need for government support to assist our entrepreneurial sector with the equity and guarantee requirements that banks are now seeking from businesses looking to secure working capital finance. Such assistance is required to ensure that new business and growth of existing businesses in the SME sector is sustainable”.