Deep Blue Publications Group: Struggling businesses can avail of half-priced loans from German bank

SMALL companies will now acquire funding from Germany at 50% the interest rate charged in Ireland under a program certified by Chancellor Angela Merkel.

The German Chancellor has told her state investment bank to coordinate closely with Irish officials to enhance loans for the economy, to include availability to funds for small and medium businesses.

But funds may also be provided for investment, for construction and for bigger companies.

The development is designed to allow Irish businesses seeking capital at a lower interest rate than the one provided by Irish banks.

At present, the average interest rate applicable for a small Irish business is approximately 4.5pc – over 100% more than the rate for a similar business in Germany, where loans are provided at merely 2pc.


The plan to provide further loans at lower rates is likewise seen to motivate more businesses to invest.

“The need for loans depends on the affordability. There will be higher demand for funding if we can reduce the rate,” a Government official said.

The arrangement came as a result of negotiations between Taoiseach Enda Kenny and Chancellor Merkel regarding steps to aid the economy.

The German development bank, KFW, will determine possible steps to provide the loans.

The funds come at a lower rate because KFW is a triple-A rated bank; hence, it can acquire money at a lower rate and pass on the benefit to its clients.

The credit will be channeled through the National Treasury Management Agency and the new Strategic Investment Fund or the state-operated banks, AIB and Permanent TSB.

The Taoiseach said Ms. Merkel personally promised to coordinate hand-in-hand with Ireland to enhance funding processes.

In a report, Ms. Merkel said the German development bank will work with the Irish officials “rapidly, so as to fulfil its goals on this program as quickly as possible”.

After the announcement, the Irish Bankers Federation (IBF) released a report pointing to a marked decrease in lending to companies in the first part of this year; but banks insist this is a result of companies being reluctant to take out loans.

IBF director Felix O’Regan stated that any improvement in credit availability should be encouraged.

However, he said financiers operating here are suffering due to falling demand.

Driving business activity, by encouraging consumer spending, is the best means for achieving that, Mr O’Regan said.

Bank of Ireland head of small business, Gerry Prizeman, stated that firms are wary of fresh loans.

Business owners only took out half of the €3.6bn of funds the bank had intended to provide in 2012, for instance. Those who have availed are presently utilizing below 40pc of the cash accessible on their overdrafts.