THE prospect of a state guarantee scheme for loans to small and medium-sized businesses appears to have evaporated.

Plans for a guarantee scheme, which are being drawn up by several state agencies, have been underway for several months. But no decision on whether to provide support has been taken to the cabinet, the former enterprise, trade and employment minister Batt O'Keeffe said in response to a parliamentary question.

With the government entering its last days in office and no minister in the department, the guarantee scheme has been put on the backburner until a new administration is in place.

O'Keeffe's department, Enterprise Ireland and Forfás have been considering plans for a guarantee that would help struggling businesses access credit with state assistance for nearly a year now. O'Keeffe said in his response to a question by Labour's Willie Penrose that his biggest concern was ensuring taxpayers would not be taking on additional and unnecessary risks.

"The provision of credit to our enterprise sector, particularly SMEs, should primarily come from a properly functioning banking sector and any additional initiatives on the state's part should not relieve the banks of their obligations in this regard," O'Keeffe said.

The department has been studying the Enterprise Ireland and Forfás reports for some time and said more work was needed.

The prospect of a guarantee for some firms was first mooted by O'Keeffe's predecessor, Tánaiste Mary Coughlan, who raised expectations for some kind of government financial assistance in January 2010. O'Keeffe said in his response to the question that it was essential to ensure any scheme would only meet the requirements of some start-up businesses which "lack the necessary collateral and which are encountering a lack of expertise within the banks".