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 Basic loan guarantee?

Fri, 04/12/2013 - 12:18 -- admin

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

Cost of Kafalat Basic loan guarantee:

Definitions:
   • Loan value: is the value of the loan granted by the bank
   • Kafalat Basic guarantee: 75% of the loan value approved 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 ]* 75% * 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, US$, or any other transferable currency.
    • 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%.

    • US$: The banks charges LIBOR (1 year) + 5.5%. (For up-to-date LIBOR rates, 
      please consult the British Bankers Association.
      The Central Bank subsidizes a maximum 7%.

Example:
If the LIBOR (1 Year) is 2.28%, the bank uses 7.78% as the interest rate on the loan. The Central bank subsidizes 7%. The interest rate paid by the borrower is in this case 0.78%.

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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