Chile expands reach of loan guarantee fund, plans economic recovery

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Chilean lawmakers have approved a bill amending the rules governing the Fogape public loan guarantee fund, created to support the country’s SME sector.

Under the bill, the scope and uses of the fund are broadened, to help businesses weather the crisis and regain strength.

The bill institutes a new type of secured loan, Fogape-Reactiva. These can be used for investment and refinancing of existing loans, as well as for working capital.

Finance Minister Ignacio Briones said the initiative would help more businesses overcome the crisis and rebuild themselves, and thanked lawmakers for passing the bill.

The interest rate charged by lenders cannot exceed 7.2% per annum plus the central bank benchmark rate, currently 0.5%. Firms with annual net sales of less than 1 million UF (inflation-indexed units, approximately $ 39.4 million) can apply. Loan guarantees are for a maximum term of seven years.

In comparison, the flexible working capital loan product – Fogape-Covid – which was launched last year in response to the crisis, carries a maximum interest rate of 3%, plus the benchmark rate. So far, nearly 300,000 of this type of loan, for a total amount of $ 14 billion, have been approved. This line should be offered until the end of April. The current bill extends the maximum Fogape-Covid loan guarantee period to five years from the current four.

Under the Fogape-Reactiva program, in place until the end of the year, access to finance will be broadened for higher-risk sectors such as tourism, the finance ministry said. Loan guarantee limits may be increased for loans corresponding to these sectors or when a loan will be used to acquire fixed assets.

Fogape was created by a decree-law of 1980. The fund is administered by the state lender BancoEstado and supervised by the financial services watchdog CMF.

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