AIB will offer business loans under the state’s new Covid-19 credit guarantee program at a base rate in excess of 2.75 pc.
First after the government launched the â¬ 2 billion program today, AIB said the state-specified premiums would be added to its base interest rate.
These premiums would result in actual charges on the loans – with terms varying from one year to 5.5 years – up to a potential maximum of 4.3% per annum. Most, however, were likely to be in the 3pc-3.5pc range.
The Bank of Ireland said it would open applications for its part of the state-sponsored scheme on Thursday.
Ulster Bank, the third pillar bank participating in the program, did not immediately confirm when it would start accepting applications.
AIB said it had received 270 million euros from the program administrator, the Strategic Banking Corporation of Ireland (SBCI), and requested a new allocation.
The government is providing up to â¬ 1.6 billion to the â¬ 2 billion program – by far the state’s largest loan facility launched to support businesses during the Covid-19 crisis. Applications must be submitted by December. Loans can range from â¬ 10,000 to â¬ 1 million.
“As the largest credit guarantee program in the history of the state, this allows us to offer rates significantly lower than those currently offered in the market,” said AIB Managing Director Colin Hunt. . “They will allow businesses to breathe and the opportunity to adapt and develop their businesses, all at low cost.”
AIB said its loans would carry a base variable interest rate of 2.75% or less.
However, the state adds a range of premiums to the base interest rate. The premium charged will depend on whether the borrower is a small or medium-sized enterprise (SME) or a primary producer, such as farmers, fishermen and other agricultural producers. Loans in the latter category result in higher premiums.
Assuming a base rate of 2.75% applies, a five-year loan to an SME would incur an annual fee of 3.36% according to the AIB loan table. This same loan to a primary producer would cost 4.15 pc per year.
Current SME bank loans typically cost over 5% for secured loans and over 7% for unsecured loans.
The Irish SME Association says loans offered even at effective rates of 3pc would still be too expensive for most businesses struggling to stay afloat amid the disruption of Covid-19 trade.