New loan scheme to spur small businesses


Both new and existing small and medium enterprises will be able to borrow money at more affordable rates from commercial banks to develop their businesses

Following President James Michel’s announcement in his National Day address on June 18 that the Ministry of Finance, Trade and Investment is putting in place a new programme that has already been discussed with local banks for affordable financing, Minister Pierre Laporte has given a detailed explanation about how the scheme, which will become operational next month, will work.

The scheme will enable entrepreneurial Seychellois to set up their businesses within a reasonable period, without difficulty accessing credit and without bureaucratic constraints.

Minister Laporte said a small and medium enterprise will only qualify for the scheme if it is making a revenue of not more the R5 million a year. This, he added, applies to new businesses based on its projected cash flow and those already in operation.

“Government will be assisting businesses through the subsidised interest rate programme. Businesses can borrow more than R3 million but government will subsidise the interest rate up to R3 million.
 For the first R1 million, the clients will pay 5% of the interest rate and government will cover the remainder of the prime or base rate. For example, if the commercial bank’s interest rate is 8%, the client will pay 5% and the government will pay the remaining 3% on the first R1 million.

“On the remaining R2 million, the clients will pay 7% of the interest rate and government will cover the remainder of the prime rate, meaning 1% if the prime rate is 8%. If the clients has borrowed more than R3 million from a commercial bank, let’s say R4 million, it will only benefit from the subsidised interest rate for R3 million and for the remaining R1 million it’s between him and the bank,” said Minister Laporte.

He noted that there are also other incentives for businesses. Actually, there are two ways new businesses pay taxes – either 15% of their profits of 1.5% of their turnover. For those who opt to pay on profits, they won’t pay any taxes in their first year of doing business if they make profits but will pay 10% in the second year. In the third year, they will be classified in their relevant business sector.

The repayment period will be between five and seven years, with a six-month grace period on repayments.

The minister added that the applicant’s personal contribution will not exceed 2.5% of the value of the loan
“A 2.5% contribution is good for two reasons. Firstly to get the entrepreneur to commit himself to the business, and secondly when a business person borrows the full amount to set up his business, the monthly repayment is much higher than if he had made a contribution,” he said.

Minister Laporte added that if in the past commercial banks have been reluctant to lend money to new businesses as they lost money through those who did not honour their commitment, this time he is sure they will do so as there are also incentives for them.

“Under this scheme, the banks will not lose all their money if a borrower cannot repay back his loan. Government will keep 1% of the business tax paid by businesses in a special account and if somehow a business that falls under the subsidised interest rate programme fails to honour its commitment towards a commercial bank from which it had borrowed the money, the bank will recoup between 50% and 70% of the money coming from the special account,” said Minister Laporte.

Only businesses in the productive sector will benefit under the scheme and Minister Laporte said that businesses only need to approach their banks and apply for a loan and from then on the procedures will be made to see under which category their businesses fall.

“The most important thing is to have a good follow-up of what is going on and a team within the ministry will be receiving reports from banks on a monthly basis. These reports, especially the rejected proposals, will be analysed thoroughly. Not everyone can do business and banks will not accept all business proposals,” added Minister Laporte, who noted that the Development Bank of Seychelles and the Small Business Agency, which also lend money, are not involved in the scheme.

On the issue of reasonable rent for the space businesses occupy, Minister Laporte said this will take a while although land has already been identified at Providence for the necessary infrastructure and the cabinet of ministers has given its approval.
Work on the infrastructure will start during the first half of 2014.