April 12, 2020

President Piñera reveals the conditions under which banks will grant state-guaranteed loans. “We are committed to helping entrepreneurs”

President Piñera reveals the conditions under which banks will grant state-guaranteed loans. “We are committed to helping entrepreneurs”
- The plan aims to ensure that substantial credit reaches companies, especially SMEs, which need it now more than ever. Proposed legislation that would provide US$3 billion in funding for the Small Business Guarantee Fund (Fondo de Garantía para Pequeños Empresarios, Fogape) will be submitted to the Senate tomorrow for immediate discussion.

President Sebastián Piñera has revealed the demanding framework of conditions set forth by the Government for managing the state-guarantee program that aims to facilitate access to working capital loans for companies.

The framework allows the state to guarantee new loans of up to US$24 billion and complements the US$3 billion capitalization of the FOGAPE Loan Guarantee Fund announced on Wednesday, April 9.

“The success of this plan hinges on active and expeditious participation by banks so that these Covid-19 lines of credit reach the companies that need them on a large scale and in an effective, timely manner,” said the President of Chile, Sebastián Piñera, who was accompanied by Treasury Minister Ignacio Briones.

These measures aim to provide access to working capital loans to 99% of Chilean companies so that they can overcome the economic impact of the spread of the coronavirus.

The framework has been coordinated with complementary actions by Chile’s Central Bank and the Financial Market Commission (CMF) and has already been communicated to the banking industry.
Treasury Minister Ignacio Briones added that “the tremendous effort the State is making in terms of guarantees will be for nothing if these guaranteed loans do not reach companies effectively, on a large scale and with preferential interest rates and terms.”

The following are the central elements of the framework established by the Government and communicated to the banking industry:

1) Amounts:

Covid-19 lines of credit for working capital in an amount equal to up to 3 months of sales in a normal period (October 2018-October 2019) for companies with annual sales of up to UF 1 million. This includes more than 99% of the companies in Chile.

2) Term:

The line of credit will have a 6 month grace period. It will be payable in installments with terms of between 24 and 48 months.

3) Rate:

There will be a maximum rate for the loans (MPR+3%), which under current circumstances equals a real interest rate of about 0%.

4) Large scale:

The banks commit to offering Covid19 lines of credit on a large scale in a expeditious and standardized manner. Consequently, it will be available to the vast majority of the banks’ commercial customers. There are 1.3 million potential beneficiaries, including legal entities and individuals that have formally commenced trading, who meet the eligibility requirements and have annual sales below UF 1 million. The Government has asked the banking industry to report weekly on the number of requests and approvals in order to oversee compliance with this commitment and the transparency of the process.

5) Postponement of amortization on other loans:

For companies who take on Covid-19 loans, the banks will postpone any repayment of other preexisting loans for at least 6 months in order to lighten the financial burden during this difficult time affecting the country.

6) Eligibility:

Basic eligibility criteria for these state guarantees will be that the customer is not undergoing bankruptcy proceedings and is not more than 30 days in arrears as of March 30, 2020 or October 30, 2019 for companies with sales of less than UF 25,000.

“We are committed to helping micro, small- and medium-sized businesspeople and entrepreneurs. Just like people need oxygen to survive, companies need liquidity,” said President Piñera.  

The following banks have subscribed to the agreement established by the Government: Banco Santander, Banco de Chile, BancoEstado, Bci, Scotiabank and Itaú. Jointly, they represent approximately 90% of total bank loans.