Credit guarantee program
Credit Guarantee Program is a credit supplementation to financial institutions lending to small and medium enterprises (SMEs), wherein SBGFC secures with its corporate guarantee the banks credit risk exposure to SMEs. Position needs enhancing through guarantee on clean loans for SMEs with no collateral at all, on partially.
This directly addresses the issue of credit access by SMEs whose bankability in terms of collateral position needs enhancing through guarantee on clean loans for SMEs with no collateral at all, on partially secured loans, and other loans with risks that shall only be acceptable to banks once shared with a guarantee institution. secured loans, and other loans with risks that shall only be acceptable to banks once shared with a guarantee.
Credit guarantee is a loan/ credit insurance.
Through credit supplementation, Small Business Corp. (SBC) incubates and grows small enterprises in terms of assets size and bankability by sustaining the flow of credit. It seeks to turnaround a situation where SMEs suffer the banks credit bias due to risks related to information asymmetry, low capital base and management capability, among others.
Facility requirements for banks:
1. A bank should be first accredited with SBGFC, and so should its credit risk rating system or BRR system
2. Repayment terms of the loan to be guaranteed should have proper matching with the subject of financing
3. Loans meant for working capital purpose must be in the form of credit lines and loans for fixed asset acquisition, in the form of amortized short term to medium term loans
Facilitys eligibility requirements for sub-borrowers:
1. SME borrowers assets size should be within P 500 thousand to P 100 million, prior to the loan and exclusive of land where project is located
2. Must secure a borrowers risk rating of at most "5.0"meaning acceptable based on a 10-point scale credit risk rating system, where 1representing the lowest risk
3. With at least three years track record in business, if not, must have a BRR of at most "4.0". SME borrowers with less than a year of business track record are excluded
4. SMEs not in the exclusionary list of SBC based on its risk-based industry assessment which is to be updated on a semi-annual basis.
Terms and conditions of creidt guarantee:
1. Portfolio ceiling per conduit bank in terms of SBCs total contingent liability with any conduit bank must not exceed 50% of SBC single borrowers limit (SBL) for unsecured loans which is equal to 25% of SBCs total capital with any conduit bank must not exceed 50% of SBC single borrowers limit (SBL) for unsecured
2. On a per industry basis, SBCs exposure must not exceed 50% of its SBL for unsecured loans.
New feature of credit guarantee:
"Early call" feature. For guaranteed loans granted as credit line, call shall be made on a per promissory note basis upon non-payment within the maturity date, so there is no need to wait for all other notes to default.
For guaranteed amortized medium-term loans, the traditional past due definition of the BSP shall be observed.
For guaranteed amortized medium-term loans, the traditional past due definition of the BSP shall
Guarantee fee:
At the time of granting the guarantee cover, guarantee fee structure is BRR-based.
The SBC guarantee fee should be computed based on probability of default, cost of 1/3 guarantee fund for contingent liability, and estimated transaction costs inclusive of monitoring. The SBCs guarantee fee is estimated to be within the range of 1.0% to 3.5%.
Other fees:
Service fee shall be adjusted to cover at least the costs of project visit, not tucked in the guarantee fee.
Service fee shall be adjusted to cover at least the costs of project visit, not tucked
This directly addresses the issue of credit access by SMEs whose bankability in terms of collateral
BRR and its monitoring:
1. Review of BRR shall be done regularly, and its frequency shall be on a BRR-based schedule. Accounts with higher BRR shall be monitored more frequently than those with lower BRR. The BRR report should be submitted to SB within 30 days from date of rating review.
2. For banks without a BRR system, the SBCs prescribed monitoring report shall be complied with instead.
3. The conduit shall notify SBC within 30 days on any incidence of account deterioration, which is incurred in either of these cases:
▪ BRR downgrading by the bank which must consider among other reasons the occurrence of fortuitous events which affect the SME.
▪ 30 day late payment on any PN covered by the guarantee
▪ Occurrence of final past due or 90 days of non-repayment.
Terms and conditions of guarantee call:
1. Period of calling on the guarantee. Call on the guarantee must be made within 120 days prescriptive period from date of default of the guaranteed promissory note.
2. If the bank will not call or has not called on the guarantee of a defaulted account, restructuring should be undertaken within 120 days from date of default.
3. Excluded from the guarantee cover shall be any loan release against a credit line made 90 days after the SME borrower incurred past due on any promissory note covered by guarantee. Through credit supplementation, Small Business Corp was called and paid by SB once the account or enterprise has been revived by SBC and whose BRR has been restored.
4. Exclusion of guarantee cover shall result from changes in the terms of the guaranteed loan without prior SB approval upon restructuring.
5. Penalties shall be imposed through reduction of guarantee cover should the covenants under item no. 8 not be observed by the partner institution.
Requirements for call on the guarantee :
1. SBC certificate of completeness of credit documents, to be issued by SB within 90 days from the date of effectivity of the guarantee cover (Read more on product brochures for deadlines related to conduct of document review by SBC on each availment on the credit line)
2. Latest BRR should not be more than six months ago from the date of call on the guarantee
3. Certificate of updated guarantee fee payment.
4. Banks property search on the SME borrower.
5. Deed of undertaking by the bank to offer a buy back option of any account whose guarantee was called and paid by SB once the account or enterprise has been revived by SBC and whose BRR has been restored to "5" or better, as validated by the bank.
Micro financing programe:
The Micro Finance Facility of Small Business Corporation is a lending program to microfinance institutions (MFIs) which have the organizational capability or strength to provide sustainable credit access to borrowers in the livelihood sector.
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