The government’s new bank is funnelling hundreds of millions into asset-backed loans.
The Strategic Banking Corporation of Ireland (SBCI), which was set up last year to provide low-cost loans to small businesses, has selected asset-backed finance for its next round of lending.
The SBCI works through third-party lenders, giving them money at low interest rates which are then passed on to SMEs. Half of its €800m fund has already been allocated to BoI and AIB.
Bibby Financial Services, an invoice finance group, is next in line. It will receive between €25m and €100m in low-cost money which will then be passed on to small businesses. Bibby Financial Services is the Irish lending subsidiary of UK multinational Bibby Line Group.
The SBCI, which is led by Scotsman Nick Ashmore, is also in talks with several other non-bank lenders who specialise in asset-backed loans.
It was created to address an acute shortage in lending for Ireland’s small businesses, who cumulatively provide the majority of the country’s jobs.
It is funded by the European Investment Bank, German state bank KfW and the Ireland Strategic Investment Fund (ISIF), formerly known as the National Pension Reserve Fund, which is managed by the National Treasury Management Agency (NTMA).
More than 1,000 small businesses have already received loans funded by the SBCI, via Bank of Ireland and AIB.
Farmers have received a large percentage of this. Farmers are historically very sensitive to interest rates.
However, some businesses are excluded. Road haulage, aquaculture and fisheries businesses are barred from receiving SBCI loans because of EU state aid rules. Farmers can only receive loans for investment, rather than working capital needs.
Gambling businesses are excluded, as are human cloning and weapons production businesses.
Meanwhile, Chicago-based alternative investment firm Victory Park Capital and Guernsey-domiciled loan company GLI Finance are in the running to manage a planned ISIF-backed fund that could lend as much as €200m to SMEs.
The Platform Investment Fund (PIF) is designed to get money to businesses through “next generation platforms” (NGPs) like peer-to-peer lending. The NTMA has sought submissions from parties interested in managing the fund.
“The strategy is to develop a PIF that starts relatively small (as low as circa €10m initially) but has the capacity to scale up significantly (potentially to €100m-€200m) over a relatively short period of time,” an NTMA document reads.
“ISIF funding could be made available to such a fund on a commercial basis. Such a proposal would also benefit if a significant element of the overall funding was also provided from alternative private market sources. Where appropriate, the PIF may also obtain equity stakes in the businesses of the NGPs in order to increase the potential return from this initiative,” the document says.
The plan is that the PIF would first carry out due diligence on the lending platforms before agreeing to fund loans originated through them. The fund may require lenders to change their processes should they not meet requirements.
ISME chief executive Mark Fielding told the Sunday Independent that his organisation had been “banging on” about alternative sources of finance for years.
“There is an appetite for it, because as a country we’re over-dependent on bank borrowing in the SME sector, compared to our EU counterparts.
“It’s high time that we moved away from it and had alternatives, especially when there’s so little choice within the banking sector.
“There’s a need for competition – and if it’s not going to come from traditional banks then it has to come from alternative sources.
“When people see the Government being involved, it’ll give more confidence to people to both lend to that and to borrow from it, and it had a massive impact over in the UK so from that point of view it’s good,” Fielding said.
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