If you’ve applied for a loan for your small business in the past, the experience may have left you thinking NEVER AGAIN! Traditional banks have proven to be very risk-averse in this area with famously low approval rates. But businesses need cash to grow and I believe that access to funds should be a straightforward matter for any financially healthy SME. That’s why I’m a fan of the credit guarantee schemes brought in by SBCI.
Why you should consider getting a business loan
First things first, why should you even be thinking of getting a loan for your SME? Irish small businesses have become great at surviving without additional funding – they invest at the same level as their European counterparts but are less likely to borrow to fund that investment. SMEs in Ireland are typically good at managing cash flow and if they grow, they tend to grow organically.
To give you an idea of the scale of this, the national SME loan book stood at €36 billion in 2008 but by the end of 2019, the loan book was down to just €15 billion euros. This means that many SMEs may be limiting their ability to grow and may not be investing at the optimal level. This is a preoccupation for the government because SMEs account for half of all employment in Ireland. If they can’t grow, it’s bad for economic recovery.
Working capital is crucial for recovery and growth
I think we are over-cautious about debt these days and this is actually a great time to invest in growth. COVID has created lots of opportunities for those who are up for the challenge. We’re also seeing much more appetite in consumers to buy local and buy Irish, both as a response to COVID but also because of Brexit and the disruptions that has caused. In certain sectors, the dominant – UK-based – player has simply stopped selling into the Irish market and left the field wide open for Irish competitors.
So if you have been smart about navigating the pandemic, you should be in an ideal position to bring in funding and push on with expansion. The clients we worked most closely with in 2020 managed to finish the year in strong positions despite the challenges they met. They kept an eagle eye on their finances and could see issues coming down the line, allowing them to adjust accordingly and take action where needed.
They have followed our advice about maximising their subsidies, engaging with Enterprise Ireland, going for Competitive Start Funding (CSF), claiming TWSS or EWSS, cutting costs, negotiating rent holidays/reductions, taking management salary cuts, etc. They may not have made the profits they were expecting to, but they have ended the year with as much cash – if not more – as the year before, leaving them in a strong position to kick-start 2021.
We’ve had more than enough time now to take stock, adapt, and think about where we want to take our businesses in 2021, 2022, and beyond. Getting finance for these next steps should now be a priority…
We’ve had more than enough time now to take stock, adapt, and think about where we want to take our businesses in 2021, 2022, and beyond. Getting finance for these next steps should now be a priority, especially as you don’t need to draw funding down immediately. Depending on the circumstances, you can wait three or even six months before accessing the cash.
SBCI’s role in making funding more accessible
The Strategic Banking Corporation of Ireland (SBCI) was established in 2014 to help with access to finance for Irish SMEs. SBCI has created real competition for the pillar banks and made it cheaper to borrow. Its risk-sharing products – either with the Irish government or European institutions – offer both lower cost and easier access for SMEs than traditional business loans.
You don’t borrow from SBCI directly; you still borrow from a financial institution, but 80% of the loan is credit guaranteed. The first step is to check if you are eligible for one of the four schemes SBCI currently has by completing an Eligibility Application Form. Once you receive confirmation, you can present it to your bank/lender as part of their credit application process.
To fund working capital requirements or innovation, change or adaptation of the business to mitigate the impact of Covid-19. Loan: from €25,000 to €1.5 million, unsecured up to €500,000. 4% maximum interest rate.
A long-term (7-10 years), lower-cost loan scheme for SMEs and small mid-caps or SMEs involved in agriculture or fishing. Loan: from €25,000 to €3 million, unsecured up to €500,000. 3.5% – 4.5% initial interest rate.
To fund working capital requirements or to fund innovation, change or adaptation of the business to mitigate the impact of Brexit. Loan: from €25,000 to €1.5 million, unsecured up to €500,000. 4% maximum interest rate.
To assist businesses, including primary producers, impacted by Covid-19 to access credit. Loan: from €10,000 and €1 million, typically unsecured up to €250,000.
The Credit Guarantee Scheme is particularly interesting if you are looking for support to emerge from COVID. The original deadline was back in 2020, but this has been extended to June 2021 and is likely to be extended again. The duration is five and a half years, and this repayment time makes it very suitable for a lot of SMEs.
Unusually, you can also use it to refinance – for example, if you took out a loan under the COVID-19 Working Capital Scheme, which is a three-year scheme. 30% of any new finance can also be used to refinance other types of debt, including those from before COVID-19. Refinancing isn’t usually considered for state or Europe-backed schemes, but in this case it is.
A wide range of alternative lenders
The recent news about Ulster Bank shutting down Irish operations is both good and bad – on the one hand, it means less competition; on the other, they really didn’t deliver for SMEs. But SBCI doesn’t just work with traditional banks. It partners with alternative lenders such as Linked Finance, Capital Flow, Finance Ireland, Close Brothers and credit unions. With better options in front of SMEs, they can now be a bit more choosy about who they borrow from and under what conditions, which can only be a good thing.
With better options in front of SMEs, they can now be a bit more choosy about who they borrow from and under what conditions, which can only be a good thing.
With businesses able to go through alternative lenders, traditional banks will have to take a hard look at their approach. Making businesses jump through endless hoops, insisting on huge personal guarantees, and long, drawn-out processes littered with endless requests for documents and poor communication have been the norm for them. Alternative lenders are much more flexible and understand that time is money, with some able to process applications in a week or two rather than six months.
We’ve seen first-hand that traditional banks were still assessing applications using their regular credit policies and not taking into account that 80% of the loan was guaranteed by an SCBI scheme. If a business is financially healthy, it should be easy for it to borrow money and to have a choice about who it borrows from, and this is what the SBCI is enabling.
Apply for a loan through an SBCI scheme
There’s never been such good access to soft loans with rock-bottom interest rates and great repayment terms. If innovation, change, and growth are part of your plans, you should take a closer look at the SBCI schemes. You might want to start by working on a business plan to clarify what you want to do and how much funding you’ll need (in fact, a business plan will be required for many applications, so it’s the ideal first step).
The more prepared you are going into a financing situation like this, the better. We no longer have personal relationships with our bank managers, so it’s on you as the business owner or financial director to build such relationships elsewhere – like working closely with an accountant. SBCI reports that there is a huge difference in the quality of applications between those companies that are working with a financial advisor and those that aren’t, and that this impacts the chances of an application going through.