Customers will be charged up to 5pc per year to borrow under the Government's Covid-19 Credit Guarantee Scheme, well above advertised rates, once insurance fees are loaded onto bills.
The scheme, one of the main pillars of the July Stimulus plan, was launched on Monday. Despite a notional €2bn size, only around a third of that money is available to borrow so far, through lenders AIB, Bank of Ireland and Ulster Bank. The banks will charge interest rates as low as 2.48pc - but mandatory State insurance charges will drive actual borrowing costs as high as 5pc.
The three participating banks announced they have received the green light to issue up to a combined €670m of loans under the scheme. More finance is expected to be authorised, and potentially expand to more lenders.
All three banks opened websites yesterday explaining how to qualify. Bank of Ireland said it wouldn't begin taking applications until Thursday.
The State is underwriting the loans with a guarantee to the banks to make good up to 80pc of all approved loans if the customer defaults. Loans can range from €10,000 to €1m for secured loans and up to €250,000 for unsecured loans. Terms range from one year to five-and-a-half years.
Unlike previous schemes, 'primary producers' such as farmers and fishers are eligible, as well as small and medium-sized enterprises (SMEs) employing up to 250 people.
While the banks have set interest rates that are roughly half the cost of current market alternatives, the State is adding insurance costs that ratchet up for longer-term loans - particularly for primary producers.
On a secured loan up to €1m, Ulster Bank will charge interest at 2.48pc, while Bank of Ireland and AIB will charge 2.75pc.
Unsecured loans up to €250,000 also cost 2.75pc at AIB, but 2.95pc at Bank of Ireland and 3.48pc at Ulster Bank.
The State's mandatory insurance charges will between 0.15pc and 0.68pc on SMEs' loans. Primary producers face stiffer premiums adding from 0.3pc to 1.55pc.
This means an unsecured maximum-term loan from Ulster Bank to a primary producer will incur a cost equivalent to 5.03pc a year. The same loan will cost an SME 3.16pc.
The Strategic Banking Corporation of Ireland, which is underwriting the loans, has cleared AIB to provide €290m of loans, Bank of Ireland €270m and Ulster Bank €100m.
The Department of Business, Enterprise and Innovation says other lenders may be admitted to the programme, but cannot specify any organisations or time frame.
"SBCI has conducted an open call to include additional finance providers in the Covid-19 Credit Guarantee Scheme. The call closed last week and the SBCI and the department are reviewing the received applications," it said.