17.03.2021

EUR 85 MILLION FOR SOFT LOANS TO SMES WITH A GUARANTEE FROM THE EUROPEAN GUARANTEE FUND

Raiffeisenbank Bulgaria will finance small, medium and slightly larger companies (with up to 500 employees) with a new EUR 85 million on facilitated terms. The funds will be provided with a guarantee from the European Investment Fund (EIF) under the European Guarantee Fund (EGF) mechanism.

The guarantee agreement signed between Raiffeisenbank and the EIF is the first of its kind for the country. Under it, within this year the bank will lend to local businesses with 85 million euros, and for each loan will be provided a 70% guarantee from the EIF – i.e. in case of inability of the borrower to repay its obligations, the fund covers 70% of losses for the bank. This type of guarantee reduces the risks for financial institutions and allows them to apply lighter collateral requirements to the lending companies than are usually required.

The parameters

Under the new guarantee agreement, companies will be able to receive up to EUR 7.5 million, with no minimum amount of funding. The funds will be provided in the form of investment or working capital loans with maturities of three months to 10 years, depending on the specific product. When asked if there are grace periods, what are the interest conditions and collateral requirements from the bank, they indicate that the approach to lending to companies is individual. The deadline for applying for funding under the program is December 31, 2021.

The new mechanism

The European Guarantee Fund is a new guarantee mechanism set up by EU member states in 2020 in response to the crisis caused by the COVID-19 pandemic. Its total amount is EUR 25 billion, raised through proportional contributions from the member states to their share in the capital of the European Investment Bank, of which the EIF is a part. The aim is to allocate the funds in 2021, the main part of which will be provided in the form of guarantee instruments aimed at supporting the affected business in the EU, with a main focus on small and medium-sized enterprises. About 20% of the amount will go to direct and indirect equity instruments, EIF CEO Alan Godard said in an interview.

Specifically for Bulgaria for 2021, the EIF envisages investments of around EUR 250 million in the form of equity financing and loan guarantee instruments. Part of the funds is from a recycled resource under the JEREMIE initiative, which has so far financed about 10,000 companies in the country with a total of nearly 900 million euros, and the returned principal and interest are reinvested in new instruments.