The State has been criticised for offering micro finance loans at an interest rate of 4.5% at a time when the country can borrow on international markets at an interest rate of zero.
Speaking before the Dáil Special Committee on Covid-19, the secretary general of the Department of Enterprise, Business and Innovation, Dr Orlaigh Quinn defended the scheme, which lends to firms over a three-year period.
She argued the first six months of the micro finance scheme was interest-free.
Dr Quinn also defended 437 approved loans for the scheme because businesses were only now returning after Covid-19 restrictions have been eased.
However, the interest rate was sharply criticised by Sinn Féin's finance spokesman Pearse Doherty for providing the finance at 4.5% when the State was borrowing at 0%.
He said that State was "failing" small and medium firms "terribly".
Mr Doherty said that grants available in Ireland were €10,000 compared to £25,000 in Northern Ireland.
He added the drawdown conditions were so difficult companies could not meet them.
Mr Doherty said a lot of companies needed working capital to put in place social distancing measures.
Independent TD Matt Shanahan called for the State to lend money to businesses at the same rate it is able to borrow on international markets.
Earlier, the committee heard that up to 9,000 small and medium size businesses could close due to the shutdown of parts of the economy.
Irish Small and Medium Enterprise Association Chief Executive Neil McDonnell said Government responses, including the restart grant scheme, had been inadequate, adding there were lots of strings attached.
He said there was a fear and apprehension in providing money to businesses.
Mr McDonnell was also asked about the possibility of a second wave of the virus.
He said businesses had to reopen and if they just waited around, there would be very grim consequences for the State, the Exchequer and the economy.
ISME has criticised the Government's response to the coronavirus pandemic and accused it of being "fixated" on multinationals.
It said the reopening has been "ponderously slow" and any further delays would be disastrous.
In his opening statement for today's sitting, Mr McDonnell said that missteps with the Pandemic Unemployment Payment and the Wage Subsidy Scheme could have been avoided if there was a formal liaison with small business.
The association said SMEs continue to be a blind spot and the perception at the upper levels is that big corporations pay their taxes, while small business owners fiddle their expenses.
The committee held three sessions today discussing the reopening of the economy.
ISME also said the implications of any additional periods of economic shutdown would be grave and many SMEs would not survive such a move.
"The current reopening road map is already ponderously slow for business and the economy. Any additional period of economic shutdown would be disastrous," it said.
The association says additional supports should remain in place until work levels return to 80% or more of pre-Covid-19 levels and that ending them before then would trigger a wave of redundancies.
However, it is critical of the restructured Pandemic Unemployment Payment saying that it is "highly problematic" that the payment is not related to pre-Covid-19 income.
It said the new two-band structure is not justified and should be amended so that a recipient should only be able to claim a maximum of their previous weekly earnings and not the full payment.