Credit Guarantee Scheme for Businesses
Credit Guarantee Scheme for Businesses
The Credit Guarantee Scheme for Businesses is sponsored by the Central Bank of Barbados in an effort to assist businesses in obtaining adequate security for their loans from credit institutions. The Scheme is designed to offer a substantial degree of protection to credit institutions against possible losses in respect of the credit granted to businesses.
Any credit institution desirous of participating in the Scheme may apply to the Central Bank to do so and, upon approval, will be able to obtain guarantees on credit facilities to eligible borrowers.
The borrower may be an individual, partnership, a corporate body, or an association of individuals, and must have the ability to contract loans and other credit facilities.
To qualify as an eligible business, the borrower must either be a company incorporated under the Companies Act and approved as a small business in accordance with the Small Business Development Act, 1999-23 or meet the eligibility criteria listed below: -
- Gross sales/revenue must not exceed $4,000,000 per annum.
- Stated or paid-up capital must not exceed $2,000,000.
- It is majority Barbadian-owned.
- It is not controlled by a business whose reserves and/or capital or non-Barbadian ownership exceeds the limits above.
- For an enterprise engaged in agriculture, acreage under cultivation must not exceed 25 acres.
In addition to the criteria listed above, eligible businesses should clearly demonstrate a need for financial assistance and/or security. Guarantees will be given on behalf of those businesses which demonstrate the greatest need in relation to their operating potential.
Eligible borrowers must have or make an equity contribution of at least 10% of the loan facility being sought. The borrowers’ contribution may be in the form of equity in the business, a cash injection or tangible security with an equivalent net realizable value.
Credit institutions may apply for guarantees not only on behalf of businesses already established but also on behalf of those about to be established or contemplating expansion.
TYPES OF FACILITIES GUARANTEED
The Central Bank will guarantee short-term, medium-term as well as long-term credit facilities as follows:
- Short-term facilities are guaranteed for a maximum of three (3) years [including a maximum grace period of one (1) year].
- Medium-term facilities for a maximum of twelve (12) years [including a maximum grace period of one (1) year].
- Long-term loans are guaranteed for up to fifteen (15) years [including a maximum grace period of two (2) years].
Short-term loan facilities, up to a maximum of $300,000 will be guaranteed by the Central Bank where such facilities are for the purpose of meeting working capital requirements, (i.e. for the purpose of purchasing raw materials, fertilizers, trade merchandise, etc. and meeting labour costs and other direct operating expenses). Bids for Government or private contracts which require an initial deposit or bond are also included in such short-term facilities.
The repayment period for working capital may be extended for seven (7) years in cases where the working capital can be classified as “permanent working capital” and is directly related to loans granted for fixed asset purchases.
Medium-term and long-term loan facilities, up to a maximum of $700,000 will be guaranteed by the Central Bank where such facilities are for the purposes of purchasing fixed assets, machinery and equipment. Guarantees will be granted for a period not exceeding the useful life of the assets acquired or for a maximum period of fifteen (15) years, whichever is shorter.
EXTENT OF THE GUARANTEE
The Scheme offers commercial banks and other credit institutions protection against losses arising from the failure of borrowers to repay their loans. The risks covered under the guarantee are:
- Insolvency of the borrower
- Protracted default by the borrower
All advances given under short-term, medium-term and/or long-term guaranteed facilities will remain covered. In the event of loss except in the case of energy projects for individuals, the Central Bank will indemnify the credit institutions to the extent of 80% of the loss sustained. For credits provided to individuals in respect of energy projects, the Central Bank will indemnify the credit institution to the extent of 100%.
The maximum amount of loss to be borne by the Central Bank shall not exceed $240,000 in respect of short-term facilities or $560,000 in respect of medium-term or long-term facilities.
However, in the case of a new (start-up) business the Central Bank will guarantee up to 90% of the loan provided there is an equity contribution of at least 10% (i.e. of the guaranteed loan) by the borrower and the business has not been in operation for more than eighteen months.