How do credit guarantee funds work?

In search of an external source of financing, entrepreneurs can use various forms of assistance. The startup is facilitated by e.g. Venture Capital funds or mezzanine funds.

What are the guarantee funds?

cash fund loan

Credit guarantee funds are another form of assistance. They facilitate the acquisition of loans and credits for starting a business by guaranteeing these obligations. The fund guarantees the loan institution that if the borrower cannot pay it back, it will do it for him.

Guarantee funds usually operate at the regional level, which means that only companies registered in a given point or province can benefit from a particular fund’s guarantees. Most institutions are associated with the National Association of Guarantee Funds, which has been operating since 1996. Funds in your region will help find the list available on the Association’s website.

Almost half of the funds operate under the National Guarantee Group. These are funds with the capital participation of the National Bank. KGP strives to develop and implement uniform rules in the surety and guarantee market. The first set of rules was developed in cooperation with the Polish Bank Association.

What kind of loans do the funds guarantee?

cash fund loan

Credit guarantee funds in Poland provide collateral for several types of liabilities. Those are:

  • bank loans,
  • loan
  • bid bonds.

What is very important, the fund can guarantee loans or credits for the start of a company, which are taken only in institutions that have a cooperation agreement signed with the fund. The loan guarantee for companies reaches up to 80 percent. the entire loan value.

The entrepreneur must ensure that only a small part of the liability is secured. To obtain support from the guarantee fund, the interest rate on the loan may not be lower than the reference rate set by the European Commission.

Who can apply for credit guarantee funds support?

cash fund loan

The activity of credit guarantee funds focuses on supporting micro, small and medium enterprises. The nature of the support provided determines the requirements for companies. The following companies can apply for securing the liability and thus making it easier to get money to start a business.

  • with a maximum of 250 employees or sole proprietorships,
  • operating for at least 3 months,
  • having creditworthiness,
  • clearly specifying the purpose for which they want to spend money from a loan or credit,
  • submitted a request for a commitment to an institution that has a contract with the guarantee fund.

Companies from the arms and agriculture sectors cannot apply for a surety. Also, enterprises conducting activities described as harmful to the environment or widely recognized as unethical cannot stand a chance.

What is the difference between a loan fund and a guarantee fund?

In addition to loan guarantee funds, there are also loan funds. The goal of both types of the institution is the same – supporting the SME sector in obtaining external financing.

However, the help of loan funds is a bit more direct. They simply grant loans for business operations (investment or revolving) to companies that do not have adequate collateral required e.g. by a bank. This is the main difference between a loan and a guarantee fund.

The advantages of loans from this type of institution include:

  • low-interest rate,
  • simplified loan application procedures,
  • a possible six-month grace period for paying the liability,
  • high amounts of available liabilities (up to USD 500,000 in loans),
  • granting despite short credit history.

The interest rate is set individually and differs between funds. To obtain a business loan, you must also have collateral. For example, the entrepreneur may take out a loan.

Other forms of a warranty include:

  • A promissory note,
  • surety from the guarantee fund,
  • a surety given by third parties.

It should also be remembered that loan funds require their own contribution when considering applications. The company’s minimal contribution to paying for the loan is 20%. A list of local funds can be found on the Polish Loan Fund website.

Where to get a loan to start your business the day after registration?

business loan

Loan companies have also seen the problems and needs of the SME sector for some time. Non-bank institutions have already managed to conquer the consumer market of low-value loans up to 4,000. zł. In 2015, the sum of all loans granted in the non-banking sector reached the ceiling of over USD 5 billion. A growing proportion of these liabilities are also becoming business loans.

These types of receivables usually bear higher interest rates than bank loans or loans from funds, but they are supported by, among others:

  • high availability
  • very simple procedures mostly transferred to the internet,
  • the possibility of obtaining support without a credit history,
  • availability the first day after company registration.

It is at the start of companies that the hardest to find the money for investments, and without them, it is difficult to grow. By taking out a loan to set up a business, entrepreneurs can enter an interest in their operating costs. Lenders also often allow repayment of debt in convenient installments spread over many months.

When looking for a loan to start a business, you can turn to cash for the business. This institution examines applications submitted by entrepreneurs the day after company registration.

This is one of the biggest advantages of this type of financing. It is not possible to look for other banking institutions that would respect such a short market experience. Autokapital.pl also offers loans at such an early stage of operations. To make a commitment the day after you set up your business, all you need is the borrower to own the car – it will be the collateral for the loan.