Commission clears Irish aid scheme

The European Commission has approved a Government scheme to provide grant aid of up to €500,000 to companies struggling due to the credit crisis.

The aid, in the form of direct grants, reimbursable grants, interest rate subsidies and subsidised public loans, will be available to companies this year and next, and applies to firms not in difficulty before July 1st, 2008.

The Enterprise Stabilisation Fund is designed to protect viable but struggling small and medium-sized businesses.

The Government has allocated €50 million for each of the next two years which will be administered by Enterprise Ireland.

It will have to judge whether applicant firms have a robust and sustainable business that would be viable in the medium-term and capable of strong growth when the global economy recovers.

The scheme is not yet active. A spokeswoman for the Department of Enterprise said it was hoped to activate the scheme “as soon as possible”.

"The scheme is intended to increase possibilities to give timely and well targeted aid to SMEs (small and medium-sized enterprises) and large companies," the European Commission said in a statement.

The Commission has approved similar plans in France, the Netherlands, Hungary, Luxembourg, Latvia, Austria, Portugal and Britain since the credit crunch intensified in September last year.

Competition Commissioner Neelie Kroes said in a statement: "The Irish scheme will help businesses affected by the current credit crunch without unduly distorting competition”.

Mark Fielding, chief executive of business representative group Isme, welcomed the approval fund but said it was far too small to have any meaningful impact.

“Another issue is it is going to be managed by Enterprise Ireland which means there might be a bias towards export firms or their 3,000 clients.”

He said the biggest problem was the ongoing refusal of banks to lend. “We did a survey last July and 24 per cent of loan applications by SMEs were being turned down."

“Our most recent research has seen that refusal rate rise to 48 per cent. So whatever the banks are claiming in public about being open for business, the simple fact is they have dramatically reduced lending.

"If the Government is serious about assisting Irish SMEs they need to get the banks lending.”

Following discussions with the main banks accountancy firm Mazars has been appointed to conduct an audit of lending to the sector.

The study will be paid for by the banks. Mr Fielding said estimates of lending to the sector were misleading as they included interest on non-performing loans being listed as new lending.

“The Mazars study will give us an idea of the current level of lending, although unfortunately it will not look back 12 months.”

Separately, a survey of Irish small and medium enterprises has found more than half reduced staff numbers last year and 40 per cent expect further cuts in their workforce this year.

Isme’s Quarterly Business Trends Survey, also found firms were slightly more optimistic in the first three months of 2009, compared with the final quarter of 2008.

Broken down by sector, construction firms have seen the highest job losses with 83 per cent of respondents saying they have reduced employee numbers, followed by distributors where 59 per cent said they had cut staff.

Only 5 per cent of the 600 respondent firms said they expect to recruit this year.

Over 70 per cent of companies reported a fall in sales in the first three months of the year with a similar percentage expecting further declines over the coming 12 months.

It said the export performance of Irish SMEs was "frightening" with 43 per cent of firms saying the value of their export orders were down compared with the first quarter in 2008.