AIB has agreed a deal with the European Investment Bank group to provide up to €280 million in new loans to SMEs.

The new funding includes €80 million aimed at companies that are export-led or are undertaking research, development or innovation. These loans of up to €7.5 million will be 50 per cent guaranteed by EIB subsidiary, the European Investment Fund, under its Risk Sharing Instrument, thus offering additional security for AIB.

The further tranche of up to €200 million in loans, to be launched early next year, will be supported directly by the EIB and will be available to SMEs across all sectors.

In both cases, AIB will be asked to pass on the low cost of EIB funds to its customers.

At the launch of the €80 million EIF-guaranteed package yesterday, AIB chief executive David Duffy said partnership with the EIF would allow the bank to lend to companies that might otherwise find it hard to access funding because of the risk involved.

Supporting SMEs is the EIF’s main goal, while the EIB is a development bank focused on long-term loans.

“It’s not just about the money; it’s about the sector in addition to the money,” Mr Duffy said. EIF chief executive Richard Pelly said the €80 million “enables the bank to take more risks than it would have done”.

The EIF’s fee for the guarantee will, for example, start at 0.25 per cent and rise no further than 1 per cent per annum.*

Application delays

News of the loans came just after research carried out on behalf of the Department of Finance found that SMEs are waiting almost twice as long as the Government would like for their loan applications to be processed. The survey, carried out by Red C, found that slightly more than half of SME loan applications are being processed in the recommended 15-day period, with the average waiting periods extending to 29 days.

AIB promised earlier this week to speed up its application process.

Red C found that demand for credit among SMEs has grown, with 60 per cent of requests made between April and September this year being sanctioned or partially sanctioned by lenders. This is a six-percentage point increase on the same period last year.

Some 19 per cent of applications were declined in the second quarter and 21 per cent were still pending when the survey of more than 1,500 businesses was carried out.

Minister for Finance Michael Noonan said the survey should give confidence to SME owners and managers to invest in their businesses.

“The SME sector is a key driver of growth and jobs in the Irish economy,” he said.

Cases overturned

Mr Noonan encouraged SMEs who have been refused credit to apply to the Credit Review Office (CRO), which is overturning 55 per cent of cases referred to it.

A separate report issued yesterday found that the CRO is “contributing” to ensuring that credit is not refused to viable businesses but called for its application process to be faster. The independent review by Grant Thornton recommended that the CRO process be less onerous for the client.

Grant Thornton's CRO recommendations

• Review the Credit Review Office application process.
• CRO should review certain cases following banks' internal appeals.
• CRO should raise its profile and engage more actively with stakeholders.
• Government should leverage off the CRO's advisory capacity in areas such as SME support.
• CRO's quarterly reports should be revised to follow more formal structures and include more user-friendly analysis.

*This article was edited on November 29th, 2012.