New regulations on SME lending

New Central Bank Regulations were signed on 17 December 2015, and updated on 27th May 2016 (the “Regulations”) which govern the dealings between regulated entities and small and medium sized enterprises (SMEs). These regulations replace the Code of Conduct for Business Lending to SMEs, 2012.

The Regulations apply to all business lending by regulated entities (except credit unions) from 1 July 2016 and to lending by credit unions from 1 January 2017. The Regulations distinguish between micro and small enterprises and medium-sized enterprises, with greater protection being afforded to the former.

The Regulations define a micro and small enterprise as an enterprise with fewer than 50 employees and either or both of the following:

  1. An annual turnover which does not exceed €10 million; and/or
  2. An annual balance sheet total which does not exceed €10 million.

The Regulations define a medium-sized enterprise as an enterprise which is not a micro and small enterprise and which has fewer than 250 employees and either or both of the following:

  1. An annual turnover not exceeding €50 million; and/or
  2. An annual balance sheet total not exceeding €43 million.

One of the most noted changes that the Regulations have introduced is the requirement that the SME have either an annual turnover or balance sheet below these thresholds whereas previously they had to have both.

Some of the requirements imposed on regulated entities under the Regulation include:

  1. Providing SME borrowers with reasons for declining credit;
  2. Greater transparency around the credit application process for SMEs;
  3. Ensuring there are clear points of contact in the regulated entity for any enquiries on issues relating to the Regulations.

There are also enhanced provisions which apply only to micro and small enterprises relating to advertising, not providing unsolicited credit, promptly contacting borrowers who have been in arrears for 15 working days and providing ongoing training to staff involved in regulated activities.