The Malta Development Bank has introduced a new initiative intended to support smaller businesses take out loans under the COVID-19 guarantee scheme (CGS) without the need hor high levels of soft collateral in the form of personal guarantees.

It said in a statement that through the guarantee of 90% provided by the MDB, the CGS 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, 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. 

The new scheme is aimed at addressing these concerns.

The MDB will be providing additional protection to banks in respect of the 10% of the loan not covered by the 90% guarantee.

In return, it is obliging banks to reduce their soft collateral requirements. 

The European Commission has approved the initiative (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, it 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 July 29. For existing loan contracts of up to €250,000 to benefit from the initiative, the banks have to amend the contracts to reflect the new conditions.

The MDB is holding discussions with the banks in this regard.