SME funding and the role of the SBCI

Expertly Put is a series of exclusive conversations with industry experts, designed to help business owners and management teams gain a deeper understanding of the topics that matter most.

I recently met June Butler , the CEO of the (SBCI) Strategic Banking Corporation of Ireland , to discuss the funding options the SBCI provides to Irish #SMEs, and how this funding can be accessed.

I start by asking June to give a brief overview of the SBCI’s core offerings for SMEs.

June Butler: Since our inception in 2014, the SBCI has channelled nearly €4 billion in low-cost, flexible funding to over 55,000 SMEs. We began as a provider of low-cost funding but have evolved to support risk-sharing lending products that meet current #SME financing needs. Our main strengths include acting as a conduit for EU-wide SME supports and enhancing competition in the SME financing market. We work with over 35 lending partners, from major banks to regional players, to provide easier access to finance, lower costs, and increased market competition. Our support includes providing low-cost funding to lending partners and introducing guarantee schemes that reduce interest rates and security requirements for SMEs.

Stuart Fitzgerald: Can you elaborate on the terms offered by the SBCI compared to what is available through traditional banking channels?

JB: We currently offer two main products: the Growth and Sustainability Loan Scheme and the Ukraine Credit Guarantee Scheme. The Ukraine Credit Guarantee Scheme supports SMEs impacted by the war in Ukraine with loans ranging from €10,000 to €1 million, including up to €250,000 unsecured, with a term of up to six years. So far over 3,800 loans have been drawn down under this scheme to a value of €330m. The Growth and Sustainability Loan Scheme provides longer-term loans of up to 10 years, from €25,000 to €3 million, with up to €500,000 unsecured. To date, over 900 SMEs have drawn down funding of almost €147m.Traditional banks typically offer loan terms of five to seven years, so our longer terms are beneficial for larger capital investments.

SF: What about the cost of capital for these schemes? How does it compare to prevailing lending rates?

JB: Costs vary depending on the loan size, term, and whether the loan is secured or unsecured. For the Ukraine Credit Guarantee Scheme, rates range from 3.8% to 5.6%. For the Growth and Sustainability Loan Scheme, rates are slightly lower, between 2.5% and 5.5%. These rates will vary from lender to lender.

SF: So, repayment schedules and the cost of capital both look attractive, but one of the biggest challenges for SMEs who are seeking funding is navigating the red-tape. What is the SBCI application process like?

JB: The process is very straightforward. SMEs start by registering on the SBCI hub at - www.SBCI.gov.ie - and submitting an online eligibility form. Where they meet the criteria, they receive an eligibility code within 24 hours. They must then present this code to their chosen finance provider, who will handle the credit application. Each product has specific eligibility criteria, such as an increased cost base for the Ukraine Credit Guarantee Scheme or the requirement for long-term investment for the Growth and Sustainability Loan Scheme.

SF: SBCI eligibility must help with the lenders credit approval process. How successful are SMEs in securing funding through their lender once they meet the SBCI’s eligibility criteria?

JB: Approval rates are very high, at around 90%. This is due, in part, to the 80% guarantee provided by SBCI, which lowers the security required by the lender and broadens eligibility.

SF: So, in simple terms, if the borrower defaults the lender is only on the hook for 20% of the loan value?

JB: Yes. Exactly.

SF: Who typically initiates the application process? Business owners or their advisors?

JB: It varies. We reach out to SMEs directly through advertising campaigns, attending industry events and through a variety of social media channels. Many businesses learn about the SBCI schemes through advisors like accountants or lawyers, industry bodies, or directly from banks who promote SBCI products.

SF: Ok. The SBCI puts these financial products out into the market. How do you then ensure these products are accessible and competitively priced?

JB: We stimulate competition by inviting banks, non-banks and credit unions to participate in our schemes through an open call. Lenders compete on their distribution capabilities and the discounts they offer SMEs. For non-bank lenders, we provide low-cost wholesale funding, ensuring the benefits are passed on to SMEs. We’re also exploring partnerships with new market entrants.

SF: Can you explain the wholesale funding model a bit more?

JB: Certainly. Non-bank lenders lack large deposit bases, so they need to source wholesale funding. SBCI provides this funding, enabling non-banks to lend to SMEs. This ensures that non-bank lenders can offer competitive rates.

SF: Is there a focus on environmental sustainability within the SBCI’s offering?

JB: Yes, the Growth and Sustainability Loan Scheme includes a green financing component. We’ve allocated 30% of this €500 million scheme for green projects, offering an additional 25 basis point (0.25%) discount for such investments. We’re seeing increased interest from SMEs in green investments despite recent economic challenges. Examples include solar panels and energy-efficient machinery. We’re working to help businesses understand the long-term financial benefits of green investments.

SF: Your energy-efficient machinery comment is interesting. One would assume that lots of plant and equipment upgrades lead to reduced carbon emissions due to improved specifications and operational efficiency.

JB: Absolutely. The practical application can be very broad and goes way beyond traditional green-energy projects like solar panels. Green supply chain investments and eco-friendly farming practices also qualify. The scheme supports a variety of green initiatives, providing flexibility based on the investment type.

SF: Thank you, June. Any final advice for SMEs considering SBCI funding?

JB: SMEs should start with a solid business case, clearly outline how they will use the funds, and demonstrate their repayment capacity. Utilising resources like the Local Enterprise Offices or accountants can help. Also, exploring both bank and non-bank options is crucial. Consider products like invoice discounting if applicable. Comparing terms, interest rates, and repayment plans can also be beneficial.

Until next time.

The SBCI was established in 2014 to avail of both national and international funding for the purpose of making low-cost credit available to Irish SMEs. Credit is provided through on-lending partners (i.e. banks and other lenders) who, in turn, lend directly to SMEs. Further details can be found at www.SBCI.gov.ie .