In response to the ongoing conflict in Ukraine which commenced in February 2022, the Ukraine Credit Guarantee Scheme (the "UCGS") was introduced by the Department of Enterprise, Trade and Employment (the "Department") in January 2023 and is operated by the Strategic Banking Corporation of Ireland (the "SCBI"). The €1.2 billion UCGS offers a guarantee rate of 80% on loans of up to €1 million to viable small and medium-enterprises ("SMEs") and small mid-caps impacted by economic challenges arising from the conflict in Ukraine. The UCGS takes its roots from the COVID-19 Credit Guarantee Scheme (the "CCGS") introduced by the Department in 2020 to facilitate lending to eligible businesses negatively impacted by COVID-19.
Eligibility Criteria
While the overarching criteria of the CCGS and the UCGS are largely similar, there are some nuances to the criteria which distinguish them.
As with the CCGS, only micro-enterprises, SMEs and primary producers are eligible under the UCGS. Eligible enterprises must show an increase in costs by a minimum of 10% on their 2020 cost figures due to the impact of the conflict in Ukraine. While this is largely similar to the CCGS, this 10% requirement shows more leniency than the 15% increase required under the CCGS.
The UCGS is available only to enterprises suffering difficulties as a direct result of the conflict in Ukraine. The CCGS was made available to micro or small enterprises already in difficulty prior to COVID-19, provided they were not subject to any collective insolvency procedures and had not received any rescue aid.
Any financing sought under the UCGS must be for a new loan, as refinancing of existing loans is not permitted under this scheme, unlike the CCGS.
Borrowing
The UCGS facilitates borrowing from €10,000 to €1 million. The maximum borrowing amount under the UCGS will be determined by either:
(a) 15% of the borrower's average total annual turnover over the last three accounting periods; or
(b) 50% of the borrower's energy costs over the 12 months preceding the month when the application for credit is submitted.
The maximum credit facility term under the UCGS is six years, with discounted loan interest rates varying between participating on-lenders. Security requirements are the same as those under the CCGS, with loans of less than €250,000 unsecured and an option to secure loans greater than this.
Lenders may offer interest and / or capital moratoria under the UCGS. Guarantee premiums are payable by the borrower which are incorporated into the margin and paid to the government of Ireland by the on-lender.
Participating Lenders and Excluded Sectors
The uptake from on-lenders has been similar to that seen under the CCGS, with AIB and BOI the first to participate. Non-bank lender Capitalflow most recently announced its partnership with the SBCI under the UCGS.
As with the CCGS, a number of sectors are excluded under the UCGS. These include:
(a) Finance of activities constituting pure financial transactions;
(b) Loans to undertakings in difficulty;
(c) Finance of activities forbidden by national or EU law;
(d) Finance of the acquisition of road freight transport vehicles by undertakings performing road freight transport for hire or reward;
(e) Finance of export-specific activities, namely funding directly linked to (i) the quantities exported, (ii) the establishment and operation of a distribution network, (iii) other current expenditure linked to the export activity, or (iv) finance contingent upon the use of domestic over imported products; and
(f) Purchase of agri-land.
The UCGS takes its core principles from the CCGS, which served as a successful lifeline for many enterprises which would not otherwise have survived COVID-19. The UCGS will play an important role in supporting Irish businesses to not only survive, but grow, despite difficulties caused by the conflict in Ukraine.
Loans under the UCGS will be available up to 31 December 2024 or until the scheme has been fully subscribed. Depending on the success of the scheme, it may be extended, as was the case under the CCGS.
Ideally, more banks will adhere to the UCGS going forward, so as to increase its availability in the market. We will continue to monitor progress.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
