The State faces a potential exposure of over €125m under current state-supported loans totalling over €0.5 billion, according to a review published by the Department of Public Expenditure and Reform.
The review also notes that 2020 has seen an increase in financing available through State-Supported Loan Schemes, with the combined value of loans approved to date - plus financing currently available (minus lending through Micro Finance Ireland) - amounting to €3.4 billion.
The DPER review cautions that the ultimate cost to the state as a result of this exposure will depend on the scale of business uptake of state-supported schemes, and the level of repayment default that arises.
It said that state supported lending is primarily intended to address credit market failures and to achieve financial and economic additionality.
The review examined five state-supported loan schemes for businesses: the 2012 Credit Guarantee Scheme, the 2017 Agriculture Cash-Flow Supports Loan Scheme, the 2018 Brexit Loan Scheme, the 2019 Future Growth Loan Scheme and the Microfinance Ireland scheme.
It reveals that between 2012 and April of this year, the total value of State-Supported Loan Approvals (excluding lending through Microfinance Ireland) was approximately €527.4m
The level of Exchequer exposure associated with loans approved under the schemes was around €125.6m.
Almost all state-supported loan schemes operate in partnership with private lending institutions on the principle of a government guarantee, whereby the exchequer agrees to take on a given percentage of losses incurred by private lenders.
The exception is Microfinance Ireland which is a government-established, not-for-profit organisation responsible for lending directly to eligible microenterprises using funding from the Microenterprise Ireland Fund.
The review notes that while state-supported loan schemes initially constituted a smaller share of enterprise supports, they have expanded in the context of the post-2008 economic recovery, Brexit, instability in agricultural markets and the emergence of the Covid-19 pandemic.
At the beginning of 2020, state-guaranteed financing available to businesses totalled around €475.6 m.
The level of exchequer-exposure associated with available financing, if all of the schemes were to have been fully subscribed in that period, would have been about €127.2m, the review confirms.
The review said the main factors driving the rise in state exposure from state-supported lending are a €2 billion increase in available financing through the Credit Guarantee Scheme, and the removal of the 13% portfolio cap that had previously been in place under the scheme.
It highlighted a broad variation in interest rates under different schemes - ranging from 2.95% under the Agriculture Cashflow Supports Loan Scheme, to 7.8% on loans from Micro Finance Ireland.
It also warned that interest rates can have implications for the attractiveness of schemes for borrowers.
The DPER review also sounded a cautionary note on the evaluation of "deadweight loss" - where state-supported lending may "crowd out" private lending.
"Any lending that would have arisen through purely private means but that takes place through the State-schemes, can be considered as deadweight loss," it stated.
However, due to an absence of Irish administrative and survey date on Irish SMEs, the Department of Business Enterprise and Innovation could only estimate deadweight loss by extrapolating from UK research on similar schemes.
It said that the Department is liaising with the CSO to source data for future evaluations.
The review also noted that data from the Microenterprise Loan Fund was requested but not forthcoming "...due to due to unprecedented demand, resource constraints and a number of other separate reviews being undertaken at the time of the request."
