Malta Development Bank builds on guarantee scheme to aid SMEs

Tista' taqra bil- Malti.

The Malta Development Bank has expanded upon a guarantee scheme it launched to facilitate businesses’ access to liquidity to address specific concerns raised by smaller businesses seeking relatively modest loan amounts.

The MDB had launched its Covid-19 Guarantee Scheme (CGS) shortly after the pandemic reached Malta, providing a 90% guarantee on loans sought out by local businesses. The bank said that the roll out of the CGS was a successful one, enabling many businesses to secure larger loans at subsidised interest rates and with moratoria on loans and internet repayments, thus allowing them to stay afloat.

However, it added, concerns were expressed particularly by SMEs and the self-employed, including to the Malta Chamber for SMEs, with businesses being requested to provide soft collateral (or personal guarantees) to cover the full value of the loans. These requests were said to subject smaller businesses to significant difficulties, especially on smaller loan amounts.

In light of these concerns, the MDB has now launched the MDB Covid-19 Small Loans Guarantee Scheme (SCLG), through which it would be providing additional protection to the banks with respect to the 10% of the loan not covered by its 90% guarantee. In return, however, banks are being obliged to reduce their soft collateral requirements.

The SCLG was approved by the European Commission on 29 July as a sub-scheme of the CGS under the temporary framework for state aid measures supporting the economy during the Covid-19 pandemic. The Commission also approved a more flexible interpretation of the share capital required by micro and small enterprises to qualify for assistance.

The new scheme applies to loan contracts of up to €250,000 that are concluded as from 29 July, with existing loan contracts also eligible to benefit, provided that the banks amend them to reflect the new conditions. With this in mind, the MDB is holding discussions with local banks.

“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,” MDB chairman 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.”