Matt Shanahan criticises Credit Guarantee Scheme as SMEs struggle

Thank you Geirleach. I think I said in this chamber recently I find myself in agreement with Deputy Boyle Barrett at times and I certainly couldn't disagree with a lot of what he said there particularly with respect to the banking sector. Minister of the Credit Guarantee Scheme, 2 billion to SMEs based on the relaxation of state aid for a limited time to be given primarily to primary producers SMEs and mid-caps so I think we have to welcome it and I would certainly welcome it in terms of the stimulus package. I think we have to ask what it is to do and I would say it is to secure employment and in doing that it also will secure hopefully the future of our youth, our culture and our society and these are not small things to be considered but we are certainly at a very difficult juncture and a crossroads in our state. Can I just talk about the history of the guarantee scheme which isn't too rosy to be honest. The previous one I think was initiated in 2012. There was 1.2 billion available over an eight year period. Only 152 million was drawn down in the eight years, 13%. If the same drawdown was to occur in this scheme it would represent an injection of 260 million euro. SMEs have been told they need liquidity but you have to ask in the way this scheme is constructed and if it is not properly constructed is this it? Ireland is facing tremendous challenges and some of the speakers before referenced Brexit. We have COVID and some of the news out this evening on COVID we can see again the society is going to be challenged and we are going to have to do more in society to try and keep this disease at bay. And what has happened in the economic environment is that demand has fallen off a cliff. And that is a really difficult place for businesses to be in because sometimes when you are in business it is very hard to know how to stimulate demand. And demand is often times something that you do not stimulate you take advantage of. So I know that liquidity schemes are needed to support businesses but I hear some of the narrative in the public sphere mostly about you know giving free money and all of that. I do not think people understand what it is that money is needed for. I am somebody with a background in business and I know if I was in business today I would be using that money to possibly clear creditors. To buy stock maybe to stock pay write downs on my stock. To pay utilities which I probably have at this stage amassed three or four or five months unpaid. If I want to reinvent my business I need to look at new product and service development. That is time and money that I need. I need to pay the annual fees that occur in my business, utilities, the rents, maybe patents if I have technology registered. I need also to have something to support the losses in returning to non-profitable work. Because once I open my doors and this has been seen in a lot of businesses already. Once they go back to work suddenly they find demand is down, revenue is down. And now what they have done is opened into a market where they are losing money every month. And they are hoping to climb, climb, climb but they need this money to support them on the way. I will give you some examples Minister of companies that might need significant funding at the moment. Pharmaceutical wholesalers for instance who have to buy in products probably with a year to a two year lifespan. They have to be able to hold them in the market place for a year. And they have potentially lost six to eight months now in the supply chain at the moment. Which means products that they have bought will be running out of stock. They have to be destroyed and that is a loss to their books. People who are involved in large capital equipment who have now lost orders, who have bought in machines. They have basically paid them on a lease purchase or whatever in the hope of selling them on. They are now looking at that stock. They cannot sell it. They have to continue to fund it until they hope the economy improves and some of those customers return. Motor retailers are in a similar setting. Food manufacturers, the amount of stock write off that was done. I won't mention the company but one of the large yogurt manufacturers here in this country had stocked primarily for an outside European market. Which stopped and all of that had to be destroyed. This is the type of thing we need monies for. So a credit guarantee scheme is needed Minister. And this one, is it the correct one? That's a question I would ask. I do welcome, as others have, the lifting of the portfolio cap which was needed. But if we compare it to the most recent working capital scheme, we have 86 million drawdown to date. 3,376 applications. Only 705 loans sanctioned. 21% of a total. The remainder, we were told by the department, are still under consideration. Delays to stimulation and an interest coupon of 4% to cover defaults, I think I heard the Tawnish to say recently. The SME restart grant is more successful. 128 million drawn down. This is a grant that is between 2 and 10K. Far more manageable for smaller businesses through the local authorities. It is very popular Minister. It lacked the funding breadth and as you know it has run out and it has to be replenished. And businesses needed that money as soon as it became available to them because they had been waiting. Microfinance loans were giving up to 50,000. We have 18 million euro drawn down to date. 1,015 applications Minister. 665 approvals. A 65% successful drawdown with an APR of 4.5% on it. Germany and France are presently charging 1.4% interest to their micros. We are charging 4.5%. We are passing on a high relative interest rate to companies that are already challenged Minister. That are already operating at a loss. That are already in debt. And we think that somehow we are helping them. I would like to reference something else here too, which as I have heard have been mentioned. Is the risk in terms of the banks as if small business people do not have skin in the game because they need to have only 80% backing. And that the small business owner, you know, this thing of moral hazard. I can tell you everybody who is involved in small business has a huge amount of skin in the game. Most of them have their lifetimes wrapped up on it, their employment, their pension. So there is no sense that they are going to be taking off into the sunset here with money that the State is going to supply. This is to resuscitate them and hopefully get them back into business. On the Coval Committee Minister, we had business groups in there, a number of them. And what we heard about them was that they needed a quantum of money with no strings or few strings attached. And they asked for grants primarily to stimulate and recover the business loss and to protect employment. So what are the implications of a fund that does not work at the levels that are needed Minister? SME losses first and foremost. The smallest businesses will go fastest. The businesses in the regions will go fastest. If you go into Dublin here today, you have an internal demand. If you come down to Waterford, it is less. And if you go down to Cahar Siveen, it is far less. And these businesses must be protected. We have closures, unemployment and rural stagnation. And I can promise you many of us outside of Dublin know what that feels like. How can we ask pillar banks at the moment to fund tourism related businesses, Minister? With loans when the business plans are completely shot the ribbons. Ask the banks to sit down. Have you tried to sit down with a bank manager and give them your projections when your turnover is dead? Your turnover is down 50% and likely to stay that way for the next 12 or 18 months and see how sympathetic he will be to you. And how much he will want to jump on board to help your business. Debt is toxic, Minister. I do not think that message is getting through. Grants are needed to shore up the balance sheets, particularly of the small businesses. Loans on top of previous debts make business recovery far more difficult, if not impossible. This message must get through, Minister. What must we implement within this credit guarantee scheme? All COVID loans presently being given by the commercial banks, which, as Deputy Boyle Barrett has pointed out, have been backed by socialised debt for the last number of years. They need to be extended out up to five years. You cannot ask people to start paying money back one, two or three years when the first 12 months they are back in operations. They are incurring losses. The credit guarantee scheme loans up to one million euro. They should be extended up to seven years. Why? Because it is a far different quantum of money. And again, the repayments are an issue based on the coupon that you are proposing to put on it. Loan repayments should be deferred for the first 12 months. This allows companies to get essentially working capital back into their business. Instead, we are asking them to give it up in order to repay a loan that ultimately the State is backing. And if the loan goes bad, the State will be at the loss of it anyway. It does not make any sense to me. Debt is toxic whenever turnover is non-existent, Minister. That is a fundamental in business. Repayment holidays will reject some capital into every business. And the other thing, interest rates should be as close to the ECB wholesale margin as possible. It makes absolutely no sense to be transferring money as other deputies have pointed out and putting it back on our business case. And in actual fact, the State trying to add its own coupon to make something out of this transaction. I will question, Minister, why or is the SBCI the right vehicle for this purpose? Why have a banking vehicle which lends to the bill of banks? It does not make any sense to me at all. I have never understood it. I think it is time to look at the SBCI as a separate bank. Maybe it is time to change its articles of association and allow it to become a commercial bank. Why not target it and maybe put it as a vehicle of lending with the credit unions or the post offices? Can we not be more radical in our thinking, more dynamic in the way we look at these problems? We have quite an amount of money with the credit unions at the moment which is earning no interest, which could be put out into bonds and funds. People could get some return on it and it could be put to work in our community. In actual fact, that would be a way of invigorating ownership within people within their own areas. The other thing Minister can ask you is the issue of measurement of the finances of our country. The issue of GNI star versus GDP. We have gone away from speaking about GDP a while ago and yet when we come to Europe, we look at ourselves in GDP terms and this sometimes leaves us at a significant disadvantage. 2019 GDP was rated at 356. GNI star was rated at 214. That is a 40% discrepancy. This is when we take out the monies for aircraft leasing, for off balance sheet transactions and what have you. Some of the intellectual box and all of that. And we count this as if this is somehow economic value that we have created in the country. It is a myth, it is ethereal, it does not exist. And we need to get back to quantifying what it is we do and what we don't do. The 750 billion package in Europe, we are supposed to be 1% of the European project. I don't think we are getting 7.5 billion euro from the EU in rescue funding. I am possibly wrong on that but I don't think so. To the issue of the July stimulus Minister, this has been said a number of times. We have to revisit the VAT rates, particularly for the tourism sector. And we know we can't go to 0% but we can certainly go to 5%. Maybe back up to 9% but there has to be a VAT holiday for a significant time. And I know people say that, you know, a VAT reduction doesn't stimulate demand. But I tell you it certainly doesn't hurt it when prices drop. Rents and utilities have to be looked at by government. We have significant problems for people who are caught in upward only rent agreements. Government has spoken about this a number of times, we have done nothing about it. And we have also got to try and find out those landlords who are profiteering at a very high rate. And I would point out to you, Minister, one other thing. We have a number of student accommodation private companies in this country who have not returned monies to those students, to those hard pressed families who have paid in advance for student accommodation. And the government has done nothing as yet to do anything about that. And I particularly point out an accommodation related to university, I won't say the name, University College Cork, Minister. But I would respect if your office would get on there and find out what is happening. A commitment was given through university, these monies would be returned. Insurance, Minister, the reform that has been going on now since 2016. You need to find some way of getting behind this problem, Minister. This is such a significant problem. We have industries now that have completely monopolised by one insurer. That's it. It's either take it or leave it. And we have to get on top of it. Administration light is the other issue, Minister. We know the issues. If you're not turning over probably in excess of one million euro, you cannot afford to try and seek administrative help for your business. You essentially go under and the liquidators can call in your debts. Bigger companies can afford that. Small companies, particularly in these times, Minister, who are very challenged, need to be protected. And there are plenty of provocative people in the administration area. And I think you need to look at legislation, even emergency legislation, in terms of companies here that are having their debts called in and being forced into liquidation. Someone said, I think it was in relation to NEFET. Sorry, not NEFET, but in the public sector procurement. I can't think of the word for it. Anyway, it was in relation to turbocharging a public procurement fund, Minister. I would ask you to seriously now look at public procurement. I think this is one area where government really needs to be radical, particularly with local authority and in the wider public sector. We have people in the local authorities who are handing out and writing tenders every week. And the way they write the tenders and the way they group them completely does not favour the people locally. It makes no sense to me to send government income into an area to have people then write tenders to send it back out again. And certainly the small business people cannot, they find it too difficult, they never meet the tender criteria. Minister, this is something that needs to be put on the people who are putting out money. Effectively, people working for the local authority in procurement are almost like customers. They have money to give out for hard pressed businesses. And we need that money to stay within the regions, Minister. And just some look at the procurement process would take care of that. So I would say to Minister, Ireland has challenges. We have COVID-19 and we have Brexit. We need to again socialise and save our commercial sectors this time. We must save our employers in turn to save our own citizens. The time is now right and it is needed for dynamic and innovative planning. I hope, Minister, that this credit guarantee may be the beginning. I look forward to the debate to follow and hopefully that we will manage to craft something that will rescue our SME communities. Thank you. Thank you.