Malta Development Bank facilitates SME access to liquidity through new scheme for smaller loans

In its efforts to support the recovery of the local business community, the Malta Development Bank has introduced a further initiative intended to support smaller businesses in taking out loans under the MDB COVID-19 Guarantee Scheme (CGS) without the need to provide high levels of soft collateral in the form of personal guarantees.

The roll-out of the CGS has been successful and through the guarantee of 90% provided by the MDB, it has enabled many businesses to secure larger loans for working capital at subsided interest rates and moratoria on loan and interest repayments. However, concerns were expressed by the business community, particularly SMEs and self-employed, including through the Malta Chamber for SMEs, that businesses were being requested “soft” collateral (or personal guarantees) for the full value of the loan. These requests were subjecting smaller businesses to significant difficulties, especially on smaller loan amounts.

To address these concerns, the MDB is launching the MDB COVID-19 Small Loans Guarantee Scheme (SCLG) through which it will be providing additional protection to the banks in respect of the 10% of the loan which is not covered by the 90% guarantee. In return, the MDB is obliging the banks to reduce their soft collateral requirements. The SCLG is, therefore, a carefully thought equitable solution that addresses the concerns of smaller businesses regarding the high levels of soft collateral requested, while giving due regard for the risks faced by the intermediary banks.

The European Commission on 29 July approved the SCLG as a sub-scheme of the CGS under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak. In the context of this measure, the European Commission also approved a more flexible interpretation of the share capital required by micro and small businesses to qualify for assistance.

The SCLG applies to loan contracts of up to €250,000 that are concluded under the scheme as from 29 July. Existing loan contracts of up to €250,000 that were concluded before this date are also eligible to benefit from this new scheme provided that the banks amend these contracts to reflect the new conditions. The MDB is holding discussions with the banks in this regard.

“The Bank is conscious that smaller businesses are the engine of the Maltese economy, and at this critical juncture for the Maltese economy, we have sought to provide a further incentive to make sure these businesses have the necessary cash flow to get through these challenging times,” Chairman of the MDB, Josef Bonnici said.

“We believe that this new measure will have a significant impact given the fact that more than 60% of the beneficiaries under the CGS so far took out loans smaller than €250,000”, added Bonnici.