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Small Enterprises (Loan Guarantee) Act (Cap. 397) Consolidated

CHAPTER 397

SMALL ENTERPRISES (LOAN GUARANTEE) ACT

To encourage the establishment of new small enterprises and the expansion of existing ones through the provision of loan guarantees by the Malta Development Corporation.

(1st October, 1997)*

ACT XX of 1997, as amended by Legal Notice 425 of 2007.

1. The short title of this Act is the Small Enterprises (Loan

Guarantee) Act.

2. In this Act unless the context or subject otherwise requires - "authorised bank" means a commercial bank authorised by the

Corporation to determine applications for assisted loans considered
to be eligible by the Corporation in terms of this Act;
"person" means any sole trader or any commercial partnership constituted under the Commercial Partnerships Ordinance† or the Companies Act, or any co-operative society duly registered as such
under the appropriate law for the time being in force in Malta;
"Co r poration " mean s t h e Malta Devel opment Corporatio n established under the Malta Development Corporation Act;
"assisted loan" means a loan granted by an authorised bank in term s of this Act and the repaym ent of w h ich loan is part ially guaranteed by the Corporation;
"Minister" means the Minister responsible for industry;
"small enterprise" means a person employing between one to ten persons (including the employer) who owns or operates plant and machinery or equipment the net value of which does not exceed the sum of €186,349.87 and whose annual turnover does not exceed the sum of €582,343.35 or such other number of persons, net value of pl ant, m achinery or equipment, or any ot her amount of annual turnover as the Minister may by notice in the Gazette prescribe:
Provi ded that group s of compan ies, part nershi ps or so le businesses with the same ownership or control shall be considered as one enterprise for the purposes of this Act; and
"qualifying activity" means an activity which in the opinion of the Corporation consists of a trade, craft or business which consists eithe r in the manufac ture , impr ovement, assembly, processing, repair, preservation or maintenance of any goods, materials or com m o d i t i es inc l ud in g com p ute r softw a re de vel opm en t, agro- in du stry an d aqu acu lt ure, or se rv ici n g of eq ui pm en t , pl an t or machinery in relation to the manufacturing industry or any other service designated as such by the Minister by notice to be published

Short title.

Interpretation.

Amended by:

L.N. 425 of 2007.

Cap. 168. Cap. 386.

Cap. 202.

*See article 1 of the Act as originally enacted, part of which has been omitted under the Statute Law Revision Act, 1980, and Legal Notice 143 of 1997.

†Repealed by Act XXV of 1995 (Chapter 386).

Qualifying small enterprise.

in the Gazette.

3. (1) A small enterprise carrying on or carrying out, or intending to carry on or carry out in Malta a qualifying activity, which fails to obtain a conventional loan from an authorised bank for lack of adequate security or business track record, may be considered by the Corporation to be eligible for an assisted loan in terms of this Act.

(2) An application for an assisted loan shall only be considered by the corporation and may only be approved by an authorised bank i f it is i n t e nded excl usiv ely for bu si ness p u rposes whi c h sh all in cl ud e p r oj ect d e vel o pm ent , st art i n g u p a bu si nes s , bu si ness expansions and efficiency im provem en t including research and development, purchase of stocks and raw material and shall not be considered or approved if it is in tended for th e replacement of existing banking facilities, financing of interest paym ents, th e acquisition of a company’s shares or the buying out of the members of a partnership.
(3) The Corporation will not consider an application as eligible if the loan can be otherwise adequately secured by personal assets or personal guarantees.

Function of authorised banks.

4. (1) An authorised bank may only assess and approve applications for assisted loans if they have been considered eligible by the Corporation.

(2) A small enterprise applying for an assisted loan shall together with the loan application submit to the Corporation and the authorised bank a business plan and any financial forecasts that may be required by the Corporation or the authorised bank in order to assess the commercial viability of the project and identify the quantum of the assisted loan.
(3) The authorised bank shall prior to the approval of an assisted loan under this Act be satisfied that conventional finance wo ul d h a ve ot herw i s e b e en gr an t e d were it n o t fo r th e l a ck of adequate security.
(4) Notwithstanding the provisions of this article a small enterprise qualifying for an assisted loan may still be required by the authorised bank t o pled ge or hy pothecate its movable or immovable property in security of the scheme loan, in which case such pledge or hypothec shall apply for the whole amount of the assisted loan and not only for that part of the loan which is not covered by the Corporation’s guarantee.

The maximum limit of assisted loans.

Amended by:

L.N. 425 of 2007.

5. (1) Assisted loans under this Act may not exceed the m a ximu m li mit of forty-eight t housand and n i ne hund red and six t een euro an d ei gh ty -f ou r cent s ( 4 8 , 91 6.8 4 ) o r such ot her maximum limit which the Minister may by notice in the Gazette prescribe.

(2) A small enterprise may benefit from several assisted loans under this Act provided that the total indebtedness under such loan or other banking facilities shall not exceed the maximum limit of forty-eight thousand and nine hundred and sixteen thousand euro
and eighty-four cents (48,916.84) or such other maximum limit which the Minister may by notice in the Gazette prescribe.

6. The term of any assisted loan shall be for a maximum period of five years from the date of the grant of the respective loan.

7. (1) The Corporation’s guarantee exposure regarding an assisted loan, shall not exceed at any moment in time sixty per centum of the total outstanding loan balance due to the authorised bank which shall not exceed the sum of thirteen thousand and nine hundred and seventy-six euro and twenty-four cents (13,976.24):

Provided that in the case of an assisted loan granted to a small enterprise which has been established for at least three years, the Corporation’s guarantee exposure may be increased to seventy per centum of the total outstanding loan balance due at any moment in time to the authorised bank which shall not exceed the sum of sixteen thousand and three hundred and five euro and sixty-one cents (16,305.61).
(2) The Corporation’s guarantee of the repayment of an assisted loan shall be subsidiary to the principal liability of the small enterprise to whom an assisted loan has been granted.

Term of the guarantee.

Extent of the guarantee. Amended by:

L.N. 425 of 2007.

8. In case a small enterprise to whom an assisted loan has been granted is in a state of insolvency or has been declared bankrupt and such an enterprise lacks sufficient funds to pay the total outstanding balance of an assisted loan, any funds available for the repayment of the assisted loan shall be applied in the same proportion as the Corporation’s guarantee exposure bears to the exposure of the authorised bank.

9. A small enterprise to whom an assisted loan is granted by an authorised bank, shall pay to the Corporation a premium of 0.1% per annum on that part of the outstanding loan balance guaranteed by the Corporation:

Provided that notwithstanding the authorised bank’s right to charge an interest rate below the market rate or to grant a mora- torium period for the repayment of capital or interest, the payment of the premium of 0.1% per annum on that part of the outstanding loan balance guaranteed by the Corporation shall in any case be due to the Corporation:
Provided further that no moratorium granted by an authorised bank may increase the terms of the loan beyond a period of five years.

Insolvency of the enterprise.

Interest premium.

10. A small enterprise qualifying for an assisted loan shall -

(a) furnish to the Corporation and the authorised bank on a six monthly basis such information, accounts, statements and other documents which the Corporation or the authorised bank may deem to be necessary for the purpose of this Act;
(b) provide the Corporation and the authorised bank with reasonable access to all premises, places, books and

Monitoring of a scheme loan.

other documents, and allow copies to be made for the purposes of this Act.

Right of refusal. 11. (1) Notwithstanding anything contained in the foregoing prov isions o f thi s Act, th e Corpo r at ion sh al l have the ri ght to declare not eligible any application under this Act.

(2) Notwithstanding anything contained in the foregoing p ro visi ons of th is Act, au th or ised ban ks shal l have th e r ig ht to refuse any application under this Act even if declared eligible by the Corporation .