Business Loan

Business Loans for Small and Medium-sized Enterprises (SMEs)

Lending to Small and Medium-sized Enterprises (SMEs) applies to all duly registered private companies or self-employed individuals/sole proprietors. A loan is classified as a business loan based on the source of income; that is, when the income source is a legal entity, the loan is considered a business loan. There are instances where loans are offered for the personal needs of business owners, for which the application is still based on the company’s income. Most banks determine if a company or group of related parties (a group of affiliated companies) falls within the SME segment according to:

• The requested loan amount.
• The annual turnover (or annual revenue).

SME loans can be unsecured or secured. Collateral is most commonly real estate, a pledge of assets, inventory, etc. The loan is granted after a thorough company analysis (or business analysis) is performed.

Types of Loans Based on Financing Needs

Working Capital Loans (Short-Term)

These are short-term loans intended for:

• Increasing the enterprise’s short-term capital and expanding its operations.
• Stocking up on raw materials and supplies due to expected price increases.
• Holding off on the sale of finished goods due to expected price increases.
• Financing investments in short-term assets (assets with a quick realisation period).

Working Capital Loans are offered in various forms, most commonly:

• Standard Working Capital Loan
• Revolving Credit
• Overdraft Facility

They are offered as secured or unsecured loans, depending on the client’s profile and the desired amount.

Investment Loans (Long-Term)

These are long-term loans used to finance investment purposes such as:

• Purchasing equipment, machinery, buildings, land, vehicles, etc.
• Construction, building and installation works (C&I Works), improvements and new technologies.
• They are provided in a lump sum or in tranches (or instalments).
• The term is based on the usual return on investment and the depreciation/amortisation period of the investment.
• A grace period is available when necessary.
• The possibility of a seasonal repayment schedule when the company’s business is seasonal (e.g., agriculture, tourism).

Specialised Business Loans

• Startup Business Loans: A guarantor company with a business history that meets the lender bank’s requirements is typically required.
• Agricultural Loans (Agri-Loans): Intended for purchasing land or agricultural machinery.
• Overdraft against Subsidies from the State Fund Agriculture (SFA): An overdraft facility backed by expected government subsidies.
• Personal Needs of Business Owners:
  • Unsecured Personal Loans – intended to cover the personal needs of the business owner (e.g., purchase of equipment, a car, or funding for education).
  • Secured Personal Loans – for the purchase of real estate for personal use (e.g., a mortgage).

Loans for Medical Professionals

• Investment Loans for Doctors and Dentists
• Overdraft based on National Health Insurance Fund (NHIF) Income

Energy Efficiency for SMEs

Financing under Guarantee Agreements

Banks offer loans with guarantees from the European Investment Fund (EIF), which assist enterprises under programs like InnovFin, COSME, and the SME Initiative, as well as loans with guarantees from the National Guarantee Fund (NGF).

When making a decision on a business loan, it is crucial to correctly define the purpose of the loan and the most suitable product for the company’s needs.

Working Capital Loans are spent on short-term operating purposes, while Investment Loans are for long-term goals. It is not advisable to purchase a fixed asset using an overdraft facility, or conversely, to mortgage a property to purchase raw materials or inventory.

The Consultants at Creditchoice will guide you to the most appropriate product and connect you with specialists in SME lending. We will inform you which banking institutions offer the most suitable products for your needs.