5 important things SMEs should understand to apply for guaranteed loans!

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Credit guarantee aims to support businesses, especially SMEs, access to formal loans. Under CGCC’s current schemes, CGCC provides credit guarantees on loans disbursed by banks and microfinance institutions that are the participating financial institutions (PFIs) to the borrowers. To reap the benefits of credit guarantees, the borrowers must be ready to apply for loans from the PFIs in the first place. Understanding how the PFIs assess the borrower’s creditworthiness helps the borrower better prepare to get the guaranteed loans.

 

Conditions

5 important things SMEs should understand to apply for guaranteed loans!
5 important things SMEs should understand to apply for guaranteed loans!

Before approving a loan, the bank must be convinced about the loan purpose and the appropriate loan amount for such purpose. How can the borrowers convince the bank? A reliable business plan and financial statement are good testimony to justify the loan purpose and amount. A proper business plan and financial records not only make it easier to borrow but also allow borrowers to critically examine the current business condition and plan better for success. Precisely, they help gauge the appropriate loan amount and repayment capacity. Indeed, borrowing the right amount matters. A surplus borrowing costs unnecessary accumulated interest, fees, and prepayment penalties, while inadequate borrowing may hinder potential business growth. This is called “condition,” one of the 5 Cs that banks use to evaluate borrowers’ creditworthiness.

 

Collateral

5 important things SMEs should understand to apply for guaranteed loans!
5 important things SMEs should understand to apply for guaranteed loans!

Given that the condition is satisfied, banks also require “collateral” to protect themselves against loan default. The banks typically provide loans worth about 70% of the borrower’s collateral value. The collateral requirement is one of the main challenges for borrowers’ access to loans from banks. According to IFC, of all small and medium enterprises that approached banks for loans, 66% were rejected because of lacking collateral requirements. This is why CGCC comes in. CGCC provides credit guarantees to banks to act as collateral on behalf of the borrowers. CGCC’s PFIs can assess the borrower’s creditworthiness by treating the credit guarantee as the borrower’s collateral. This reduces the collateral burden for the borrowers when applying for loans.

 

Capacity

5 important things SMEs should understand to apply for guaranteed loans!
5 important things SMEs should understand to apply for guaranteed loans!

The ability to repay the loan is the fundamental requirement for the bank to approve a loan. Regardless of satisfactory conditions and collateral or CGCC’s guarantees, the banks would not lend, and CGCC cannot guarantee if the borrowers cannot prove that they can repay the loans. So how can the borrower justify the “capacity” to repay? Again, this is when a reliable business plan and financial record can come into play. A proper financial statement tells the borrower’s assets, liabilities, equity, income, and cash flow which are reliable sources to evaluate the repayment capacity. Plus, the business plan describes the future business trajectory in which future income can also be used to justify the repayment capacity.

 

Capital

5 important things SMEs should understand to apply for guaranteed loans!
5 important things SMEs should understand to apply for guaranteed loans!

If banks provide business loans, they want to know how much own “capital” the borrower put into the business. This matters because it shows the borrower’s commitment to the company where the loan proceeds will be used. It shows “skin in the game.” How can the borrower master this? The proper financial record should show the owner’s equity in the business. Official supporting documents such as partnership agreement and company registration are valid evidence of the borrower’s investment in the company. Usually, banks find it more challenging to assess informal or unregistered businesses because they lack reliable sources of the document to validate their creditworthiness. That is why businesses are encouraged to register to improve their access to finance.

Character

5 important things SMEs should understand to apply for guaranteed loans!
5 important things SMEs should understand to apply for guaranteed loans!

Another criterion to prove the repayment capacity is the “Character” of the borrower. Notably, banks investigate the borrower’s credit records, including loan repayment history, number of loans, and current loan outstanding, etc. The primary purpose is to assess the borrower’s trustworthiness. Currently, Cambodia Credit Bureau (CBC) provides comprehensive credit reporting on individuals and businesses, which is helpful for banks to evaluate the borrower’s character. However, in some instances, if your credit records are not favorable, you need to strengthen other Cs to convince the banks. For example, during the COVID-19 Pandemic, many businesses face challenges leading to late debt repayment and loan default, adversely impacting their “Character” and “Capital.” In this case, to get loans, the borrowers need to demonstrate a solid business plan which can improve “Condition” and “Capacity” and utilize CGCC’s credit guarantees which can improve “Collateral.”

 

As we can see, the 5Cs – condition, collateral, capacity, capital, and character – are important factors that banks evaluate the borrowers before deciding to lend. Improving the 5Cs increases the chance of getting loans from banks. A reliable financial statement and business plan can be used to validate every Cs, while a credit guarantee can help address the “Collateral” issue.

Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses

Download the Full article in PDF: Give Non-Collateral a chance! 

Lack of collateral is the main challenge for businesses in Cambodia to get loans. The Royal Government of Cambodia established the Credit Guarantee Corporation of Cambodia (CGCC) to address this challenge. With credit guarantees, borrowing without collateral is no longer impossible. For CGCC to yield the benefits requires a good understanding from relevant stakeholders about how it works.

Simply put, CGCC provides credit guarantees to share the credit risk with the banks on loans made to businesses. In other words, the banks can claim from CGCC if the guaranteed loan defaults. There are two main types of credit guarantee – individual guarantee whereby the guarantee covers individual loans and portfolio guarantee whereby the guarantee covers a portfolio consisting of multiple loans. Since CGCC itself is not a lending institution, it currently collaborates with banks and micro-finance institutions (MFIs) that are the participating financial institutions (PFIs) to provide guaranteed loans to businesses. As a government-backed institution with adequate capital in its account, CGCC is set to provide a wide range of guarantees on loans disbursed to Cambodian-owned businesses across the country.

 

Why should the lender need the credit guarantee?

Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses
Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses

When lending, banks normally protect themselves by requiring collateral from the borrowers. When the borrower cannot repay the loan, the banks liquidate the collaterals to cover the loss. If the required collateral is not sufficient, the bank is unlikely to lend. The collateral requirement becomes more stringent, especially during times of uncertainty such as the COVID-19 Pandemic, because businesses are perceived to be riskier, and banks become more risk-averse. Now with CGCC, the banks can protect themselves with the credit guarantee instead of the collaterals. Currently, CGCC provides credit guarantees up to 80% of the outstanding loan principal which means that the bank bears the remaining 20% of the loss if the loan defaults. The credit guarantee empowers banks to remain competitive in the market and to lend out more to underserved borrowers who lack collaterals, what is referred to as “credit additionality.”

 

Why should the borrower need the credit guarantee?

Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses
Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses

Credit guarantees increase the borrowing capacity. CGCC provides guarantees that act as collateral on the borrower’s behalf. Needless to say, CGCC cannot be beneficial for every business. By all means, if the business has sufficient collateral and the ability to repay the loan, the chance is that such a business does not need a credit guarantee, and the bank would also be happy to lend even without CGCC’s guarantee. However, it is common that a potential business with the ability to repay the loan is unable to borrow because of insufficient collateral. Businesses simply cannot pledge the collateral on every loan they wish to borrow. The collateral is limited. This is a huge loss to the business and the economy as a whole. With the required loan, the business could have generated more income, employed more workers, and produced goods or services that contribute to the economic growth of the country. When CGCC provides guarantees to the banks, the borrowers now have easier access to loans from the banks because the banks are willing to lend more with less collateral requirement.

Credit guarantees are used by many countries as a policy tool to improve access to finance and financial inclusion. However, never before has a credit guarantee corporation been incorporated in Cambodia. According to the World Bank, “Public credit guarantee schemes (CGSs) are a common form of government intervention to unlock finance for small and medium enterprises (SMEs). More than half of all countries in the world have a CGS for SMEs and the number is growing.” While many credit guarantee schemes have proved successful in supporting the SMEs, many have also failed.

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.

CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” second cohort

“I’m Financially Literate Program” was successfully launched by Sathapana Bank, in partnership with Khmer Enterprise, Manulife Cambodia, and Credit Guarantee Corporation of Cambodia (CGCC). The second cohort of this program was organized on 08 & 09 and 15 & 16 October 2022 to provide non-financial services to SMEs and MSMEs and especially women in business.

More than 30 Entrepreneurs and business owners attended the second cohort, and shared their experiences as well as related financial issues, and they also had the opportunity to learn more about entrepreneurship, prepare financial statements for Business, understand loans with banks and choose the right loan for their businesses.

This training program is specifically designed to provide practical skills and experience related to financial literacy and business management skills, as well as access to business networks that can drive business growth for entrepreneurs, especially women entrepreneurs. 

CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” second cohort
CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” second cohort

CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”

On 17 September 2022, CGCC and Maybank Cambodia co-organized the “SME Building Capacity and Capability (BCC) Programme” at Maybank Tower, participated by more than 50 SME entrepreneurs to provide business support instruments and technical advisory based on international best practices to support SME growth, productivity and innovation, as well as enhance competitiveness for SMEs.

Mr. No Lida, Deputy CEO of CGCC, remarks on the importance of this program for SMEs beyond the cooperation between CGCC and Maybank Cambodia, and Mr. Duk Sarak, Head of Community Financial Services of Maybank Cambodia, relayed the opening remark for the event. SME participants had the opportunity to learn about the topic of “Business Registration in Cambodia” from SokSiphana & Associates, “The Importance of Financial Discipline for SMEs” from Acclime Cambodia, “Access to Finance and Guarantee Scheme” from Maybank Cambodia.

CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”

Upon the collaboration on providing loans with credit guarantee, on November 2021, CGCC and Maybank Cambodia also co-organized the Business Forum on “Supporting SME Businesses in Cambodia” to discuss more details about the possibility of collaboration on how to support SMEs for greater access to finance despite collateral issue and the support of SME’s capacity Building and long-term growth.

CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”

CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort

“I’m Financially Literate Program” was successfully launched by Sathapana Bank, Co-sponsored by Khmer Enterprise, Manulife Cambodia, and Credit Guarantee Corporation of Cambodia (CGCC). The first cohort of this program was organized on 03 & 04 and 10 & 11 September 2022 to provide non-financial services to SMEs and MSMEs and especially women in business.

More than 30 Entrepreneurs and business owners attended the first cohort, and shared their experiences as well as related financial issues, and they also had the opportunity to learn more about entrepreneurship, prepare financial statements for Business, understand loans with banks and choose the right loan for their businesses.

This training program is specifically designed to provide practical skills and experience related to financial literacy and business management skills, as well as access to business networks that can drive business growth for entrepreneurs, especially women entrepreneurs. 

CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort
CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort
CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort
CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort

Click here to read more about: CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” second cohort

Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”

On 01 September 2022, Ministry of Economy and Finance and CGCC organized a Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector” in Kampot Province, in collaboration with the Ministry of Tourism, through the provincial department of tourism, and SME bank, which was  participated by more than 50 business owners in the tourism sector.

This seminar was presided by Mrs. Chin Sopheakla, Deputy Director of Kampot Provincial Department of Tourism, Mr. No Lida, Deputy CEO of CGCC, and Mr. Neav Sokun, Chief Operation Officer of SME Bank.

Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”
Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”

Through this workshop, SMEs in the tourism sector, including resorts, hotels, guesthouses, restaurants, etc., were informed about the benefits of getting guaranteed loans, in response to the lack of collateral when applying for loans for the purpose of improving and recovering their business that are impacted by COVID-19 pandemic.

SMEs also learned about government’s financial supporting mechanisms on favorable loans conditions such as low-interest rate through SME Bank and guaranteed without collateral by CGCC.SMEs can request for guaranteed loans for their tourism related businesses through CGCC’s “Co-Financing Guarantee Scheme for Tourism Sector” that act as collaterals for business loans in the tourism sector through “Tourism Recovery Co-financing Scheme” of SME Bank.

Detail of “Co-Financing Guarantee Scheme for Tourism Sector”: https://cgcc.com.kh/en/co-financing-guarantee-scheme-for-tourism/

Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector” organized by CGCC on 1 September 2022 in Kampot Province
Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”
Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector” organized by CGCC on 1 September 2022 in Kampot Province
Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”

CGCC’s Co-Financing Guarantee Scheme to help Tourism Sector

Credit to Khmer Times: Published on 20 July 2022

The scheme is specifically targeted at tourism-related businesses. It provides a higher guarantee cover of 80 percent of the loan amount with a nominal guarantee fee of one percent per annum, says Wong Keet Loong, CEO of CGCC.

Business owners in the tourism sector who lack collateral can apply for a loan with a credit guarantee from a financial institution that is a partner of the Credit Guarantee Corporation of Cambodia (CGCC), according to the Ministry of Tourism.

According to an announcement from the Ministry of Tourism, CGCC launched the Co-Financing Guarantee Scheme for Tourism on 12 July to support the rehabilitation and growth of the country’s tourism sector.

The scheme is a credit guarantee, providing collateral for 80 percent of the loan from banks and financial institutions.

In case the tourism business owner lacks collateral to secure a loan in the co-financing project, they can apply with a loan guarantee from a financial institution that is a partner of CGCC.

The CGCC launched the scheme after receiving approval from the Ministry of Economy and Finance.

Wong Keet Loong, CEO of CGCC, told Khmer Times that the scheme is specifically targeted at tourism-related businesses. “It provides a higher guarantee cover of 80 percent of the loan amount with a nominal guarantee fee of one percent per annum. The scheme is mainly for loans disbursed under the Tourism Recovery Co-Financing Scheme (TRCS) of the SME Bank of Cambodia,” he said.

Loong explained that under CGCC’s current scheme, the Business Recovery Guarantee Scheme (BRGS), tourism is classified as a priority sector. It has guaranteed 15 tourism-related businesses with a loan amount of $1.78 million.

“The scheme was recently launched to complement the SME Bank’s Tourism Recovery Co-Financing Scheme (TRCS).  TRCS provides low borrowing costs whilst the CFGS-TR provides credit guarantees as collateral for the loans. Business owners can obtain loans at low-interest rates without providing physical collateral,” he pointed out.

CGCC’s existing schemes also cover the tourism sector should PFI use its own source of funding and require higher loan amounts to be guaranteed. He said most businesses in this sector that have been impacted by the pandemic have either scaled down or shut down temporarily.

“To recover their business, they would need funding for renovation or refurbishments. When requesting loans from banks, they are required to pledge their collaterals. The requirements for collateral have become more stringent as FIs are more risk-averse toward the sector,” Loong said.

CGCC guarantees 80 percent of the loan and it shares the risk with the financial institution, enabling the borrower to borrow without having to pledge additional collateral.  “Furthermore, the guarantee will give added confidence to the financial institution to lend to this sector,” he added.

You might also be interested in Co-Financing Guarantee Scheme to support Tourism Recovery

CGCC shares tips to access to guaranteed loans for Women Entrepreneurs

On 16 June 2022, Mr. Wong Keet Loong, Chief Executive Officer of CGCC, participated as a panelist in the Women Entrepreneurs Forum on “Access to Finance and Markets for Women’s Business Growth”. Mr. Wong has shared the participation of CGCC in supporting financial inclusion for women entrepreneurs, especially in assisting them to get guaranteed loans.

In the panel discussion on “Increase access to information on financial products and services”, Mr. Wong emphasizes the importance of credit guarantees, acting as part of collaterals, to assist women entrepreneurs in obtaining loans from CGCC’s Participated Financial Institutions (PFIs). The credit guarantee mechanism is an additional intervention with favorable features, initiated by the government, to assist women-owned businesses to get formal loans for the purpose of working capital and business expansion, since 61% of the businesses in Cambodia are owned by women.

CGCC shares tips to access to guaranteed loans for Women Entrepreneurs

In addition to the ongoing support for women entrepreneurs from relevant stakeholders, Mr. wong also encourages all women entrepreneurs to be prepared to comply with the conditions of those favorable financing, including the credit guarantee. Credit guarantees that act as parts of collaterals for business loans through CGCC Participating Financial Institutions (PFIs) are eligible for all woman entrepreneurs. In order to obtain this supporting scheme, women entrepreneurs can seek information from CGCC and from CGCC’s 23 PFIs.

This Women Entrepreneurs Forum participates around 200 participants including women and women entrepreneurs, which provides the opportunity for them to access information and solutions addressing business issues, products/services development (e.g. access to finance, product requirements for local chains, how to access legal supports, and digital literacy). CGCC recently launched the third credit guarantee scheme, the Women Entrepreneurs Guarantee Scheme (WEGS), in April 2022, which is specifically designed for women and women-owned businesses, aiming to narrow the gap between the supply and demand for financing by providing a higher guaranteed coverage with favorable credit guarantee features. Women Entrepreneurs can find this scheme information at: https://cgcc.com.kh/en/women-entrepreneurs-guarantee-scheme/

CGCC shares tips to access to guaranteed loans for Women Entrepreneurs

Click here to read about: Courtesy visit by CGCC to NBC to discuss expanding more support to improve financial inclusion