Kafalat Innovative

- What is the purpose of the Kafalat Innovative guarantee?
- How much can Kafalat Innovative guarantee?
- How much of the loan does Kafalat Innovative guarantee?

- Are you eligible for a Kafalat Innovative loan guarantee?
- What legal status must the Kafalat Innovative loan guarantee applicant
  have?

- For what purposes can the Kafalat guaranteed loan be used?

- What are the activities that are excluded from the guarantee scheme?

- 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?

What is the purpose of the Kafalat Innovative guarantee?

The Kafalat Innovative guarantee was set up to specifically support innovative start ups. Innovative start ups are those who demonstrate the potential to create significant commercial added value through innovation. Accordingly, innovation is defined as at least one of the following activity:

• Development of a new product or service,

• Development of a new production or business process,

• Development of new uses for existing products,

• Development of new types or modes of distribution or sales channels.

top 

How much can Kafalat Innovative guarantee?
Currently the maximum loan amount for a Kafalat Innovative guarantee is 300 million Lebanese Pounds. The minimum amount is 4 million Lebanese Pounds.

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.

top
How much of the loan does Kafalat Innovative guarantee?
Kafalat Innovative currently guarantees 90% of the value of the loan granted by the bank and 90% 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, Kafalat guarantees the repayment of 90% 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 10% 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.

top
Are you eligible for a Kafalat Innovative loan guarantee?
The applying SME must fulfill all the following conditions:
   • The loan is used in one of the following economic sectors: Industry, Agriculture,
     Tourism, Traditional Crafts, or High Technology;

   • The SME shall provide evidence in the form of a business plan, that it has the ability to repay the loan;

   • The SME must not be engaged in any of the activities excluded under the scheme as stated below

   • The start up must be a bona fide new business venture which has not conducted any commercial operation in the past;

   • The start up should be a Lebanese registered entity employing in majority a Lebanese labour force; with the majority shareholder; or in the case of a sole trader or partnership, the individual or main partner should be a over 18 years of age;

   • No default under any credit facility should have occurred during the 2 years prior to the date of loan request for any of the partners associated to the start up;

Preferably, the SME also

   • Has the potential to export;

   • Has potential to generate significant value added and/or use local raw materials and/or introduce new and innovative technologies;

   • Operates in rural areas promoting basic infrastructure and financial support;

   • Works with new prototypes, products, inventions based on detailed market analysis, financial and technical appraisal.

P.S: The fact that a start-up is undergoing mentoring and guidance from reliable, recognized entrepreneurs such as provided in the Bader or the Berytech programmes will weigh in favor of the investment that is being requested.

top
What legal status must the Kafalat Innovative loan guarantee applicant have?
Kafalat Innovative loan guarantees are given to incorporated SMEs only (ie: SAL, SARL, Cooperative  ... )

For what purposes can the Kafalat guaranteed loan be used?
The Kafalat guaranteed loan could be used for all business related expenditures that include:
   • Purchase of equipment and capital goods. (These can be new or used)
   • Plant renovation, expansion, etc.;

   • Purchase of raw materials, spare parts, working capital, and consulting fees;

   • Construction costs. (However, the loan should not be exclusively used to cover    
     construction costs.)
   • Marketing promotion activities, such as participation in show rooms, foreign exhibitions,
     etc.;

   • Research and development;

   • Other strategic objectives that serve the interest of SMEs and start ups.

The expenses have to be relevant to the business activity that is the subject of the loan.

top

What are the activities that are excluded from the guarantee scheme?

The following activities will not qualify for loan guarantees under the Kafalat guarantee scheme:

   • Manufacturing or selling arms, weapon, or munitions;

   • Activities that contributes to the violation of internationally recognized workers and human rights conventions or Lebanese labour laws;

   • Any activity defined as illegal, or environmentally hazardous and dangerous for human
     health;

   • All activities involved in the gambling industry;

   • Activities involved in currency speculations;

   • Security investments, or other type of financial assets;

   • Activities in the real estate sector.

Other Kafalat Innovative loan guarantee conditions

   • The borrower must commit to making a minimum contribution of 10% in personal equity towards the cost of the project;

   • Loans may be only approved for the purchase, renovation or extension of premises, machinery and equipment, working capital and up to 15% of cost of professional fees and services related to the project;

   • Project costs incurred before a loan guarantee application is made will not be taken into consideration, unless a prior written justification is given by the bank and approved by KAFALAT;

   • Loan application may be presented simultaneously by the client to the commercial bank and to KAFALAT. KAFALAT is entitled to issue a guarantee certificate for the applicant;

   • The lending bank is not allowed to require from the borrower any collateral on top of the Kafalat loan guarantee.

Repayment of Kafalat Innovative guaranteed loans
The loan has to be repaid within a maximum period of 5 years. New loan guarantees include a grace period of between 6 and 12 months depending on the expected business revenue. In the grace period, the borrower makes no payment, neither principal nor interest.

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

top
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.

top
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.

top