Credit unions could provide billions more in loans to small- and medium-sized businesses if they were allowed to centralise funds within a new structure that was guaranteed by the State, an Oireachtas committee heard this morning.

The Joint Committee on Jobs, Enterprise and Innovation also heard however that many loan applications received from SMEs by credit unions are "unrealistic" and based on belief that "optimism will triumph over reality".

Kevin Johnson, chief executive of the Credit Union Development Association, which has 25 members and an asset base of €2 billion, told the committee that said that in some cases, banks had already declined loan applications before an approach to the credit union was made. He spoke of existing businesses had not faced up to the impact of falling demand and would-be new enterprises that were making loan applications without any knowledge of their market.

Mr Johnson acknowledged that lending to SMEs is “not for all credit unions” but expressed support for a centralised structure backed by a State-guaranteed bond in which individual credit unions could invest. This structure would, in turn lend to SMEs.

A similar guaranteed “central body” was proposed by David Matthews, business unit manager with the Irish League of Credit Unions, which represents 376 credit unions in the Republic ad has €12.8 billion in assets. He said his association’s members had €5 billion in funds “we’d like to see put to better use”, while credit unions also need “significant” loan growth to ensure their long-term viability.

A centralised structure would allow SMEs to benefit even if their local credit union was unable to lend, the committee heard.

“We want to lend, we need to lend and we have funds to lend,” Mr Matthews said. He pointed to a number of “roadblocks”, however, including regulatory lending restrictions faced by a large number of credit unions and a low appetite for risk within the unions themselves.