Guarantees for Loans to Small and Medium Enterprises

What is the cost of the loan? What is the interest rate on the loan? What is the cost of a Kafalat Innovative loan guarantee?

Fri, 04/12/2013 - 14:46 -- admin

What is the cost of the loan? What is the interest rate on the loan? What is the cost of a Kafalat Innovative loan guarantee?

Cost of Kafalat Innovative loan guarantee:

Definitions:
   • Loan value: is the value of the loan granted by the bank
   • Kafalat Start Up guarantee: 90% of the loan value granted by the bank
   • Kafalat commission: 2.5% of the value of the guarantee
   • Interest accrued during grace period is the value of the interest charged to the  
     borrower during the grace period where the borrower is not making any repayments
   • Interest accrued for 3 months: the interest that is charged by the bank for the first
     3 months after the grace period

Formula:
([Loan Value + interest accrued during grace period + interest accrued for 3 months ]* 90% * 2.5%) + ([Loan Value + interest accrued during grace period + interest accrued for 3 months ] * 0.3% fiscal stamps)

The 0.3% fiscal stamp fee is charged once.

Interest rate charged:
Kafalat guaranteed loans can be taken in Lebanese Pounds only.
• Lebanese Pounds: banks charge the borrower 40% of the interest on the    
Lebanese Treasury Bills (TB’s) of 1 year. For information on current TB rates,  please check the Central Bank.
The Central Bank subsidizes a maximum 7%, or the interest charged, whatever is lower.

Example:
If the Lebanese TB (1 year) is 6.75%, the bank uses 5.7% as the interest rate on  the loan. (6.75% * 40%) + 3% = 5.7%
As this rate is less that 7%, the whole interest is paid by the central bank, and the  borrower pays no interest rate.
If the Lebanese TB (1 year) rises to 12%, the bank calculates an interest rate of   7.8% on the loan, and the Central bank subsidizes 7%. The interest rate paid by the borrower is in this case 0.8%.

Final cost of the loan:
The final cost of the loan is made up of:
   • Cost of Kafalat commission
   • Interest charged to borrower
   • One time file fee may be charged by bank (maximum 400.000 Lebanese Pounds)
   • Some banks charge an additional bank commission of 0.2% of the outstanding balance
     calculated every three months
   • 0.3% fiscal stamps fee paid once
See examples.

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