New enterprise loan guarantee scheme set up

The Institute for the Promotion of Small Enterprise yesterday signed an agreement with Bank of Valletta and HSBC Bank Malta setting up the operation of the New Enterprise Loan Guarantee (NELG).

As a result of this agreement, IPSE will be in a position to offer a guarantee of up to 80 per cent of the value of a loan required by first time entrepreneurs willing to start a business.

Through this agreement, Bank of Valletta and HSBC will charge an interest rate of 1.75 per cent over base rate (as stipulated by the Central Bank of Malta) for the total amount of the assisted loan.

The guarantees will be supported by the Credit Guarantee Fund (CGF). This Lm5 million fund was set up by IPSE from the money made available by the Maltese government to support the programmes of assistance aimed at the restructuring of the manufacturing sector, and the establishment and growth of innovative SMEs.

"Experience in other countries has shown the effectiveness of loan guarantees in facilitating access to finance required by small and restructuring enterprises," IPSE said.

IPSE's loan guarantees are used to help raise the finance required for both the procurement of fixed assets and additional working capital required to implement a business and/or a restructuring plan IPSE would agree to support. To date, IPSE has provided guarantees to clients enabling them to raise over Lm2 million of loans from local banks.

Out of the Lm5 million fund, the sum of Lm1.5 was set aside for the New Enterprise Loan Guarantee.

The two other products that are currently available under the Credit Guarantee Fund are the Standard Loan Guarantee (SLG) and the Contract Network Guarantee (CNG).

The Standard Loan Guarantee offers access to a loan guarantee of up to half of a loan required to implement business plans across IPSE's programmes of assistance. In addition, IPSE also offers an interest subsidy on the guaranteed loan that is equivalent to half of the interest due on the guaranteed sum.

The Contract Network Guarantee offers a guarantee of up to a third of the contractual obligations with third parties entered collectively by at least two of its clients so as to enable them to undertake significant contract work.

"Enterprises in their start-up phase present financial institutions with above average risk. The New Enterprise Loan Guarantee goes a long way to alleviate the situation by sharing the risks of a new business start-up," it said.

IPSE said it would continue to upgrade its portfolio of products and services in its efforts to support in the restructuring, formation and growth of innovative business in Malta.