What is a Guaranteed Loan Application Process?
Financing your business is one of the first priorities a business owner needs to sort out in order to get the business running. Before Guaranteed loan was created, average citizens found it difficult to acquire any type of loans in Cambodia. Now, thanks to the hard-working Cambodian government, the Ministry of Economy and Finance (MEF) has put immense effort into setting up the first Credit Guarantee Corporation of Cambodia ever. Credit Guarantee Corporation of Cambodia Plc. (CGCC) is a state-owned enterprise established by Sub-Decree No. 140 ANKR.BK dated 01 September 2020. CGCC is operated under the technical and financial guidance of the Ministry of Economy and Finance (MEF).
Explain the meaning of a guaranteed loan
A guaranteed loan is the type of loan that has a third party to guarantee the loan that you intend to acquire or apply for. This also means the third party will become the one who received the debt obligation when the borrower of that loan could not make timely payments, misses payments or stops making payments on interest, and principal that was borrowed altogether.
How to apply for a Guaranteed loan?
Guaranteed loan term is still an uncommon financing method in Cambodia, for a business owner however this is used frequently among their peers. Currently, Cambodia has established Credit Guarantee Corporation of Cambodia whose mission is to provide credit guarantees to lenders on loans made for business purposes based on international standards to share the risk with lenders and to improve financial inclusion.
Currently, CGCC offers three different guarantee schemes including the “Business Recovery Guarantee Scheme (BRGS) ”, “Co-Financing Guarantee Scheme (CFGS)”, and Women Entrepreneurs Guarantee Scheme (WEGS) to the borrowers. The primary objectives of these guaranteed schemes are to target and support businesses including Micro, Small, and Medium Enterprises (SMEs) and large firms to enhance their access to formal loans for both working capital and investment or business expansion. Furthermore, offered schemes are also in alignment with the policies of the Royal Government of Cambodia to support the survival and economic recovery from the COVID-19 pandemic.
For those who want to know who are the eligible borrowers please refer to the requirements below:
- The Borrower must be a majority shareholder of the Cambodian-owned business who owns a share of more than fifty (50) percent
- The Borrower must produce a business registration issued by appropriate government authorities under the laws and regulations of the Kingdom of Cambodia
- The Borrower who is a non-registered business must proceed with the registration after the guarantee is approved. If the borrower remains a non-registered business, an additional guarantee fee of 0.5% per annum of the guaranteed amount will be incurred at every year-end of the guarantee.
- All Borrower should be financially viable
Here are some of the processes of applying for guaranteed loans at CGCC:
- Business owners shall apply loans to banks/MFIs who are CGCC’s PFIs (Click here for all PFIs: https://www.cgcc.com.kh/en/join-us/#our-pfis )
- After getting a loan request from business owners, PFIs will evaluate the request based on their conditions and requirements
- When the loan request meets all requirements, PFIs will approve the loans and submit a guarantee application for the loan to CGCC for guarantee.
- CGCC will evaluate the guarantee application for the loan submitted by the PFIs. If the application is approved, CGCC will issue a Letter of Guarantee to the PFIs within 3-5 days.
- PFIs will disburse the Guaranteed Loan to the borrowers.
In essence, this opens up a great financial opportunity for business owners who are looking to expand their working capital and investments. It is still early to assess how far and how fast CGCC can support the businesses. CGCC must continue to strengthen credibility, efficiency, and transparency and adhere to the best practices including the World Bank’s principles for public credit guarantee schemes for SMEs to gain trust and support from all relevant stakeholders. What is also important at this stage is that all the players understand and start to utilize the credit guarantees for the right purposes.