The President of Chile, Sebastián Piñera, announced a capitalization law on Tuesday that provides US$3 billion to the small business guarantee fund (Fondo de Garantías para Pequeños Empresarios, Fogape) at state-owned bank BancoEstado. This is designed to stimulate preferential loans to companies to help them overcome the impact of the global coronavirus pandemic.
This initiative will make it possible to provide state-guaranteed loans of up to US$24 billion and will benefit 99.8% of Chilean companies, which between them account for 84% of the jobs in Chile.
The President explained "given these serious threats, the State has assumed a protective role and we are creating a protective network to help all our fellow Chileans during these difficult times. This protective network aims to safeguard people’s health and lives, while also protecting the jobs, salaries, businesses, and the quality of life of all our fellow Chileans." He was speaking at a ceremony at La Moneda Palace attended by Treasury Minister Ignacio Briones, Employment Minister María José Zaldívar, Economy Minister Lucas Palacios, and representatives from trade associations of small and medium-sized businesses.
This measure forms part of the Government’s plan to protect the economy and aims to provide companies with liquidity to cover their working capital requirements during the coronavirus pandemic, which includes paying salaries, rents and leases, suppliers, and other obligations.
All micro, small, medium, and large companies with annual sales of less than UF 1 million can access this line of credit under this new law: a total of 1.3 million companies and businesspeople meet these criteria. (A UF is an index-linked unit of account, currently worth around US$34.)
“Behind every micro-, small- and medium-sized business there is a face, a family, the endeavor of a lifetime, a project and a dream for the future that undoubtedly deserve to be supported in the difficult times that we as a society are going through. So my message to everyone running micro-, small- and medium-sized businesses in Chile is that you are not alone in these difficult times. We are going to support you and help you to get back up on your feet and moving forward once again,” the President emphasized.
These loans will bear interest at a nominal annual rate equivalent to the Central Bank's Monetary Policy Rate, which is 0.5%, plus an additional 3%. Under the current circumstances, this equates to a real interest rate of close to 0%.
The State will also guarantee a percentage of the loan depending on the company’s annual turnover. It will guarantee 85% of the loan for companies with sales of up to UF 25,000, 80% for companies between UF 25,000 and 100,000, 70% for companies between UF 100,000 and 600,000, and 60% for companies between UF 600,000 and 1 million.
The line of credit will have a 6 month grace period and it will be repayable in installments with terms of between 24 and 48 months.
For any company subscribing to a Covid-19 loan, the banks will postpone repayments falling due on any pre-existing loans for at least 6 months, in order to lighten the financial burden during this difficult time.
The President concluded his speech by again stressing the need for unity to overcome the global coronavirus pandemic and its economic consequences: "Together we will get back up on our feet and move forward once again."