Kafalat Basic

- How much can Kafalat Basic guarantee?
- How much of the loan does Kafalat Basic guarantee?
- Are you eligible for a Kafalat Basic loan guarantee?
- What legal status must the Kafalat Basic loan guarantee applicant have?
- For what purposes can the Kafalat Basic guaranteed loan be used?
- Repayment of Kafalat Basic guaranteed loans
- 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?

How much can Kafalat Basic guarantee?
Currently the maximum loan amount for a Kafalat Basic guarantee is 300 million Lebanese Pounds or its equivalent in foreign currencies. This is approximately 200.000 US$.

The size of the loan requested has to reflect the needs of the project to be financed. The value of the Kafalat approved loan will depend on the financial requirements of the project as justified in the business plan / feasibility study.

For funding requirements between 300 and 600 million Lebanese Pounds, please see the Kafalat Plus guarantee, details below. No public guarantee scheme exists in Lebanon for loans above 600 million Lebanese Pounds. However, loans in excess of 600 million Lebanese Pounds may benefit from interest rate subsidies by the Central Bank. For further information, please consult the Central Bank .

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How much of the loan does Kafalat Basic guarantee?
Kafalat Basic currently guarantees 75% of the value of the loan granted by the bank and 75% of the accrued interest during the grace period + 3 months. (Examples). The value of the guarantee diminishes proportionally to the value of the outstanding loan as calculated in the repayment schedule.

Thus, the Kafalat Basic guarantees the repayment of 75% of the outstanding amount to the bank if the borrower fails to repay. However, the borrower is liable for the whole outstanding amount and not only the 25% not guaranteed by Kafalat.

In the case the borrower fails to repay, the file is transferred to Kafalat that proceeds with the follow up of the outstanding amount. In any case, the borrower remains liable for the entire outstanding amount.

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Are you eligible for a Kafalat Basic loan guarantee?
The applying SME must fulfill all the following conditions:
   • The enterprise has 40 employees or less
   • The guaranteed loan is used for business development: to establish a viable
     new production capacity, or to sustain current production and employment
   • The loan is used in one of the following economic sectors: Industry, Agriculture,
     Tourism, Tradition Crafts, or High Technology

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What legal status must the Kafalat Basic loan guarantee applicant have?
   • Kafalat Basic loan guarantees are given to all types of legal entities.
     The borrower can be an individual, a personal company, a simple partnership, a limited
     liability companies, a joint stock company, or a cooperative.
   • The business venture can be an existing one or a start-up.
   • The borrower does not have to be Lebanese, but the business activity has to take
      place in Lebanon and must be registered as an entity in Lebanon. It should create
      value added for the Lebanese economy. As such, non-Lebanese businesses, non-
      Lebanese individuals or Lebanese expatriates are encouraged to use this service.

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For what purposes can the Kafalat Basic guaranteed loan be used?
The Kafalat Basic guaranteed loan could be used for all business related expenditures such as:
   • Purchase of machinery and equipment. (These can be new or used)
   • Purchase of raw materials and spare parts;
   • Construction costs. (However, the loan should not be exclusively used to cover   
      construction costs.)
   • Working capital

The expenses have to be relevant to the business activity that is the subject of the loan and the expenditures have to occur after the approval of the loan guarantee.

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Repayment of Kafalat Basic guaranteed loans
The loan has to be repaid within a maximum period of 7 years. New loan guarantees include a grace period of between 6 and 12 months depending on the expected business revenue. During the grace period, the borrower makes no repayment, neither principal nor interest.

Loan guarantee extensions and increases cannot benefit from an additional grace period. Kafalat Basic loan guarantees have a maximum duration of 7 years, starting from the date of the initial guarantee.

Example:
A borrower receives a loan guarantee of 200 million Lebanese Pounds on January 1, 2002. A couple of years later, the borrower wishes to expand the business which requires additional funding. The maximum additional Kafalat guarantee could be 100 million Lebanese Pounds, irrespective of how much of the loan has already been repaid. Similarly, the last repayment of the loan must take place on Dec. 31, 2009 or before.

Loan repayment is made by equal principal payments over the period of the loan. See examples.

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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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