Credit Guarantee Scheme 2015.
Statutory Instruments
Source: Statutory Instruments

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paragraphs: Citation
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paragraphs: Commencement
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paragraphs: Definitions
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paragraphs: Overview of the Credit Guarantee Scheme
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paragraphs: 1. Objectives of the Credit Guarantee Scheme
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paragraphs: 2. Facility and Guarantee Term
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paragraphs: 3. Loan Values
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paragraphs: 4. Eligible Credit
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paragraphs: 5. Ineligible Credit
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paragraphs: 6. Portfolio Approach
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paragraphs: 7. Premium Charge
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paragraphs: 8. De Minimis State Aid
Exceptions to the €200,000 State Aid Limit
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paragraphs: 9. Operator
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paragraphs: 10. Data Protection Act
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paragraphs: 11. Marketing and Promotion
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paragraphs: Accreditation of Lenders to the Scheme
Legal Agreement
Accreditation Process
Strategic Positioning
Lending Policies and Procedures
Additionality
Regulatory Matters
Allocation of Guarantee Portfolio
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paragraphs: Operational Matters
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paragraphs: 1. Target Borrowers
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paragraphs: 2. Eligible Sector and Activity
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paragraphs: 3. Verification of Borrower’s State Aid
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paragraphs: 4. Restrictions on Exporting
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paragraphs: 5. Arrangement Fees and Margin
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paragraphs: 6. Payment of the Scheme Premium
Introduction
Premium Value
Payment Arrangements
Non-payment of the Premium
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paragraphs: 7. Borrowers Moving Between Lenders
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paragraphs: 8. Drawdown and Repayment
Capital Repayment Moratoriums
Tranche Drawdowns
Repayment Frequency
Changes to the Term
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paragraphs: 9. Scheme Security
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paragraphs: Scheme Eligibility Restrictions
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paragraphs: 1. Business Sector restrictions
Aquaculture (Fish Farming)
Primary Agriculture
Banking, Finance and Associated Services
Coal
Formal Education
Insurance and Associated Services
Owning and Dealing in Property
Public administration, national defence, and compulsory social security
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paragraphs: 2. International Issues
Restrictions on Exporting
Protectionism
Foreign Ownership and Registration
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paragraphs: 3. Acquisitions, Buy-Outs and Share Purchases
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paragraphs: General Scheme Application Process
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paragraphs: Managing the Scheme Facility after it is Guaranteed
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paragraphs: 1. Transfers of Scheme Facilities between Lenders
Introduction
Practical Arrangements
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paragraphs: 2. Refinancing of Non-Scheme Debt from another Lender
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paragraphs: Demands and Recoveries
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paragraphs: 1. Overview
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paragraphs: 2. Key Stages in the Demands and Recoveries Process
(a) Demand on Borrower
(b) Pursue Borrower for Repayment/Recovery of Outstanding Exposure
(c) Recoveries Procedures (via security realisation or recovery procedures)
Practical Application
Use of Debt Collection Agents
Sale of Outstanding Debts to a Third Party
Cessation of Recovery Procedures
Recovery Costs
(d) Apportion Recovery Proceeds
Step 1 — Categorise Debt
Step 2 — Apply Proceeds from the Scheme’s Linked Collateral and Personal guarantees
Step 3 — Prior/Simultaneous Commercial Debt
Step 4 — Scheme Debt and post-Scheme Commercial debt
(e) Claim on the Guarantee
Claim Process
Timing Rules for Making a Guarantee Claim
Demand Invoice
Portfolio Limits
First and Second Reviews
Settlement of Demand
(f) Subsequent Procedures and Recoveries
Further Recoveries
Recoveries Statement
Treatment of Regular Repayment Plans
Incorrect Calculations and Losses
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paragraphs: Other Conditions
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paragraphs: 1. The Claim Limit
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paragraphs: 2. Lending Limits
The amount the Lender is Allowed to claim under the Guarantee
Change of ownership occurs within the Lender Organisation
Termination of Scheme Legal Agreement
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paragraphs: Auditing and Reporting
Introduction
Audit Objectives and Risks to be Examined
Audit Grades
Evidence Required to Provide Substantial Assurance
num: 12
paragraphs: 1. Claim Audit
Introduction
Documentation to be provided by the Lender to the Auditor
The Claim Audit Appraisal
num: 12
paragraphs: 2.Annual Reports
Non-Compliance with Scheme Rules
S.I. No. 48 of 2015
CREDIT GUARANTEE SCHEME 2015
Notice of the making of this Statutory Instrument was published in
“Iris OifigiÃºil” of 13th February, 2015.
I, GERALD NASH, Minister of State at the Department of Jobs, Enterprise and Innovation, in exercise of the powers conferred on me by section 5 of the Credit Guarantee Act 2012 (No. 26 of 2012) and the Jobs, Enterprise and Innovation (Delegation of Ministerial Functions) Order 2014 S.I. No. 545 of 2014 , with the consent of the Minister for Public Expenditure and Reform and the Minister for Finance hereby make the following Scheme.
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paragraphs: Citation:
This Scheme may be cited as the Credit Guarantee Scheme 2015.
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paragraphs: Commencement:
This Scheme comes into operation on the day of its making.
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paragraphs: Definitions
In this Scheme
“Department” means the Department of Jobs, Enterprise and Innovation;
“Guaranteed Rate” means the proportion of the principal amount of any guaranteed Scheme Facility which is protected by the Scheme Guarantee. For this Scheme it is set at 75%;
“Portfolio Accepted Lending” means the total value of Accepted lending undertaken within a calendar year in connection with which the Lender may call upon the Scheme Guarantee, so long as it does not exceed the Lender’s Portfolio Base Lending Limit without the Department’s permission;
“Portfolio Claim Limit” means the total value against which Guarantee Claims may be made by a Lender arising from defaults of their Scheme Facilities in any one year’s Portfolio. The Portfolio Claim Limit is therefore linked to the year of Acceptance of the Facility and not to the year in which the claim arises; and
“Portfolio Default Limit” means the proportion of the overall total of a Lender’s guaranteed Scheme Facilities (Portfolio Accepted Lending) in any one year’s Portfolio which is protected by the Guarantee Scheme. This is the maximum percentage of default in the scheme that will be covered. For this Scheme it is set at 10%.
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paragraphs: Overview of the Credit Guarantee Scheme
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paragraphs: 1 Objectives of the Credit Guarantee Scheme
The Scheme provides a State guarantee through the Minister to accredited Lenders of 75% on eligible individual loans or other debt facilities supported by the Scheme (a “Scheme Facility”) to viable Micro, Small and Medium-sized Enterprises (SMEs) within the meaning of Section 3 of the Credit Guarantee Act 2012 . The Guarantee is paid by the Minister (the “Guarantor”) to the Lender on the unrecovered outstanding principal balance on a Scheme Facility in the event of a Borrower defaulting on the Scheme Facility repayments. The purpose of the Scheme is to encourage additional bank lending to SMEs, not to substitute for conventional lending, and to support refinancing of bank lending, where banks are exiting the Irish SME Credit market.
All decision-making at the level of the individual Scheme Facility will be fully devolved to the participating Lenders.
The Scheme is intended to address specific market failures that prevent lending to some commercially viable businesses by providing a level of guarantee to banks against losses on qualifying Scheme Facilities. Target groups are commercially viable SME businesses, i.e. SME businesses that can demonstrate repayment capacity for the additional credit facilities, but that do not secure credit facilities due to either or both of the following two market inefficiencies:
“Pillar 1”) Insufficient collateral for the additional facilities or in the case where an SME is seeking to refinance due to its bank exiting the Irish SME credit market there is insufficient collateral available to support this refinancing, and
“Pillar 2”) Growth / expansionary SMEs which due to their sectors, markets or business model are perceived as a higher risk under current credit risk evaluation practices.
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paragraphs: 2 Facility and Guarantee Term
Scheme Facilities will run for whatever term is deemed to be commercially appropriate by the Lender. However, irrespective of the term of the facility, the maximum period for which the Guarantee is available on the facility is seven years, from the date of acceptance by the Borrower.
The Scheme will be for individual calendar years.
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paragraphs: 3 Loan Values
Scheme guarantees may be provided for any eligible facility value from €10,000 to €1million, although the Lender has discretion to only use the Scheme within part of this range if it chooses to do so, e.g. to align their use of the Scheme with their own SME lending product segmentation.
Applicants may apply for more than one Scheme Facility during the life of the Scheme so long as the aggregate of the initial value of all facilities provided does not exceed €1million under the Scheme. Once €1million of facilities has been provided, the Applicant is ineligible to apply for any additional Scheme funding, even when the original €1million has been repaid.
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paragraphs: 4 Eligible Credit
The Scheme is designed to be able to be used to support a range of debt instruments appropriate to the borrowing needs of SMEs in both segments (“Pillar 1” and “Pillar 2”) of the Irish economy. New Borrowers seeking funding facilities for working capital or investment purposes are eligible, as well as borrowers seeking to refinance loans where its bank is exiting the Irish SME credit market. These facilities can be either unsecured or partially secured.
Demand loans, term loans and performance bonds will be covered by the Scheme. Lenders will also be entitled to make the case for the inclusion of other types of debt instrument, with such cases then considered by the Department.
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paragraphs: 5 Ineligible Credit
Overdrafts, leasing, trade finance and credit cards are currently outside the scope of the Scheme.
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paragraphs: 6 Portfolio Approach
The State will enter into an agreement with each Lender and will accredit the Lender to participate. For each calendar year that the Scheme runs, all of an accredited Lender’s Scheme Facilities accepted by Borrowers in that year will be treated as a separate Portfolio of that Lender.
The guarantee will be given to each Lender on the sum of those Scheme Facilities accepted by Borrowers in each year of the Scheme (the Lender’s annual Portfolio value, the Portfolio Accepted Lending) rather than individually (loan-by-loan basis). The decision to approve loans under the Scheme is at the discretion of the Lender, provided the Borrowers meet the eligibility criteria.
A Portfolio Default Limit will be set at a value of 10% of the aggregate value of Scheme Facilities accepted in each year (portfolio) for each Lender (or the Portfolio Base Lending Limit, if it is lower), thereby capping the State’s exposure at a guaranteed 75% of the Portfolio Claim Limit. Once a Lender’s defaults in any of their portfolios have reached that portfolio’s Portfolio Claim Limit, any further losses from Scheme Facilities in that portfolio must be borne by the Lender and will not be eligible to have 75% of them reclaimed from the Minister.
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paragraphs: 7 Premium Charge
In return for the guarantee, Borrowers will be required to pay the Guarantor a premium of 2% on the annual outstanding contracted principal balance of the Scheme Facility, assessed and collected by the Scheme’s operator over the term of the guarantee. These payments must be made in advance either annually or in instalments (quarterly and half yearly), and the first drawdown is conditional on these payments being up-to-date on the date of the drawdown.
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paragraphs: 8 De Minimis State Aid
The assistance provided through the Scheme, like many Government-backed business support activities, is regarded as a State Aid and is governed according to the European Commissions De Minimis State Aid rules. The Aid attributable to the provision of a Scheme Facility contributes towards the rolling three-fiscal-year De Minimis limit (usually €200,000 — see exceptions below for certain business sectors) to which SMEs are subject. Therefore the Aid arising from any Scheme Facility, in conjunction with all other De Minimis State Aid received by the Applicant in this or the previous two fiscal years, must not cause the applicant’s particular limit to be exceeded.
Exceptions to the €200,000 State Aid Limit
Primary agricultural production (i.e. farming) is excluded from the Scheme. Value-adding downstream processing and marketing activities are regarded as being “industrial” and so are eligible for the Scheme and subject to the €200,000 limit.
A lower limit of €100,000 applies to Scheme Facilities provided for roadtransport businesses, with a specific additional prohibition on the purchase of road freight transport vehicles to be used for hire and reward.
A lower limit of €30,000 applies to Scheme Facilities provided to businesses involved in the production, processing and marketing of fisheries products. There is a specific additional prohibition on the construction or acquisition of fishing vessels or their modernisation to increase capacity or efficiency, with the exception of safety-related improvements.
Irrespective of the thresholds identified above, any restrictions on sectoral eligibility as prescribed by the Guarantor take precedence for the purpose of determining entitlement to use the Scheme.
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paragraphs: 9 Operator
The Department shall contract with a third-party service provider, the “Operator”, in accordance with Section 7 of the Credit Guarantee Act 2012 to manage the overall operation of the Scheme.
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paragraphs: 10 Data Protection Act
The Department, its Operator and the Lender will agree in the bilateral guarantee agreement that in respect of confidential information that constitutes personal data that they will follow the requirements of the Data Protection Act 1988 and the Data Protection (Amendment) Act 2003 . The Lender, Operator and the Department must take every step to ensure that only information about Borrowers relevant to the operation of the Scheme is collected and retained, and that this information is held securely.
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paragraphs: 11 Marketing and Promotion
If the Lender decides to promote their participation in the Scheme through their own publicity material, such as printed brochures, press advertising or website content, the Lender undertakes to ensure that all details regarding the Scheme are at all times as up to date and accurate as possible.
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paragraphs: Accreditation of Lenders to the Scheme
Legal Agreement
In order to participate in the Scheme, participating Lenders will have certain responsibilities and obligations. These requirements will be described formally in a standard agreement which each Lender enters into bilaterally with the Minister, following an accreditation process.
The subject of the legal agreement which will be entered into by the Minister with each individual bank will be in accordance with the terms and conditions laid down in:
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paragraphs: The Credit Guarantee Act 2012 ,
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paragraphs: This Scheme,
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paragraphs: The Scheme Operating Manual, and
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paragraphs: The data reporting requirements, to include for each Facility: size, term, sectoral and geographic distribution, purpose of debt, etc.
Lenders will also be required to provide to the Operator all information necessary to administer the Scheme throughout the lifetime of the Scheme.
Accreditation Process
Lenders will be required to provide all requested information to allow the Operator, on behalf of the Minister, perform an accreditation process focusing on the detail and appropriateness of the prospective Lender and their systems in the following areas:
Strategic Positioning
A review of the Lender’s finance products, where the Lender organisation fits in the SME financing landscape and the extent to which it is targeting specific market sectors.
Lending Policies and Procedures
The Lender will be required to attest that their credit, security and recoveries policies and procedures, and their standard documentation and ancillary business support services applied to Guarantee Scheme debt will be similar to those applied to other non-Scheme SME loans.
Additionality
A detailed consideration of how the Lender will use the Scheme to support lending over and above that currently being achieved. To demonstrate an understanding of the additionality principle, Lenders will be requested to provide examples of where the Scheme could have been used in the past — i.e. examples of viable lending applications that were declined specifically due to the circumstances the Scheme is intended to address.
Regulatory Matters
In addition to the core eligibility criteria set out above, the Lender will be required to attest that the following 4 matters are supervised by its regulatory authority and that the Lender meets the requirements of that regulatory authority in terms of:
num: 1
paragraphs: Legal Structure and Governance
Consideration of the legal form, ownership, regulation and governance procedures,
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paragraphs: Management
Competence, suitability and probity of the management team and the board of directors,
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paragraphs: Performance
The organisation’s objectives and performance, including financial appraisal and peer comparison, where appropriate, and
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paragraphs: Availability of Capital
The Lender’s current and future funding sources.
Allocation of Guarantee Portfolio
The Lender will be required to estimate the likely volume of loans that it will make under the guarantee Scheme and apply for an allocation to the Operator, following the accreditation process.
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paragraphs: Operational Matters
The Operator is responsible for all matters related to the day-to-day running of the Scheme, and will be the point of contact for the Lenders. The Department will not be involved in day-to-day matters of an operational nature.
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paragraphs: 1 Target Borrowers
The Applicant may not be a customer in difficulty.
The Applicant SME (or Applicant’s group) must employ fewer than 250 persons.
The Applicant (or Applicant’s group) must have an annual turnover not exceeding €50 million and/or an annual balance sheet total not exceeding €43 million.
The source of the turnover and balance sheet figures should be the latest management or statutory accounts, whichever is deemed appropriate according to each Lender’s normal credit assessment criteria.
For start-ups, or businesses which have traded for less than 12 months, the turnover and balance sheet figures examined should be those forecast for the first 12 months of trading.
Where the Applicant is a company within a larger group, the turnover is treated on an aggregated basis for the whole group of companies. In such instances the latest consolidated group accounts should normally be used (unless the Lender’s credit assessment process dictates otherwise).
There is no requirement to “group” applications with common directors, but Lenders should follow their normal commercial practices with regard to treatment of such connections.
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paragraphs: 2 Eligible Sector and Activity
The Scheme Facility must be used to support activity with an eligible purpose in an eligible sector. Details on eligibility restrictions are found below. Once the stated eligibility rules are met, the Applicant will be eligible for a Scheme Facility if:
• the Lender would be prepared to offer the Applicant a non-Scheme Facility if full collateral was available or if it is a growth / expansionary SME, which due to its sector, markets or business model, is perceived as a higher risk under current credit risk evaluation practices,
• the Lender believes that the Applicant has a viable business plan and that the Scheme Facility can be repaid, and
• the Lender believes a demand loan, term loan or performance bond is the appropriate debt instrument to use in terms of the Applicant raising finance.
Each Lender must assess viability according to their normal credit assessment criteria. The decision of the Lender is final in terms of assessing viability. The Lender will normally undertake this assessment prior to considering the Scheme eligibility criteria. If the Lender deems the Applicant’s proposal is not serviceable, the proposal will not be viable irrespective of the existence of the Scheme.
Where the business has existing facilities, but is seeking to invest in an emerging sector, this would be eligible under “Pillar 2” of the Scheme, provided the new loan application is perceived by the Lender as a higher risk under current credit risk evaluation practices. If it is a new loan it is considered additional credit. If it is a consolidation or restructuring of an old loan, it is not considered additional credit and is therefore ineligible, unless the situation is where the SME is seeking refinancing to allow it move from a bank that is exiting the Irish SME credit market.
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paragraphs: 3 Verification of Borrower’s State Aid
As part of the lending process the Lender must ask the Applicant for the necessary information to enable the Lender to establish whether or not receipt of a Scheme Facility will result in the Applicant breaching the €1million lifetime Scheme limit or the rolling three-fiscal-year1 €200,000 (or lower) De Minimis State Aid limit. This information must be made available from the Borrower in the completed and signed ‘Borrower Scheme Application Form’. The Lender may accept the Applicant’s declaration as being sufficient confirmation of this point. However, should the Lender have any reason to believe that the Applicant may in fact be in breach of the limits, there is a duty upon the Lender to investigate and, if necessary, reject the application.
Where a Borrower is found to be in breach of the limits once the Scheme Facility has been drawn, the Lender must inform the Operator immediately. If the breach cannot be remedied, it will be a commercial decision for the Lender whether to permit the facility to continue from that point without the guarantee, or to make a Demand on the Borrower.
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paragraphs: 4 Restrictions on Exporting
As the Scheme will operate under the De Minimis State Aid rules, it cannot be used to specifically support export-related activities. This does not mean, however, that because a business exports it is ineligible from receiving a Scheme-backed facility. It is the purpose to which the funds borrowed will be put which is the determinant.
A Scheme Facility may not be provided to support a transaction where the amount of funding required is explicitly linked to a quantity of goods or value of services being exported. Therefore a facility to provide working capital specifically in support of export sales will be ineligible because working capital requirements are usually driven by sales.
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paragraphs: 5 Arrangement Fees and Margin
The Lender may charge an arrangement fee and interest rate margin for the Scheme Facility as per the Lender’s normal charging procedure.
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paragraphs: 6 Payment of the Scheme Premium
Introduction
The Scheme Premium is the amount of money the Borrower pays to the Minister as a contribution towards the costs of the Minister providing the Scheme. As such it is analogous with an arrangement fee payable for the provision of a facility and not an insurance premium paid to give the Borrower protection against their inability to repay a facility which has been provided. The first drawdown on a Scheme Facility is conditional on the Premium payments being up-to-date on the date of the drawdown.