INTRODUCTION
2. CURRENT STATUS OF SME FINANCING IN BULGARIA
2.1. EXISTING INSTRUMENTS FOR SME FINANCING
According to the Agreement for financial cooperation between the Governments of the Federal Republic of Germany and the Republic of Bulgaria, and the signed Contract for Loans, Funding and Projects between the Bulgarian National Bank and the German credit institution KfW, funds at a value of DEM 10 million have been contracted under this credit line, from which:
• a loan of DEM 8.5 million for the project Encouragement of SMEs;
• DEM 1.5 million for funding the necessary related expenses on the project realization.
The first payment under the credit line is at a value of DEM 4.5 million and has been already transferred. The allocation and operating management of the funds shall be performed by the commercial banks, appointed by the BNB (APEX) and KfW. They, on their behalf, offer long-term financial support to reliable Bulgarian enterprises. The micro- and small enterprises from all the sectors - trade, services and production - may apply for credits, since investment projects and long-term assets, as well as working capital shall be funded under this programme. The technical support for the banks, as a part of the Programme, shall be performed for two years (starting January 1999). The period of action of the programme has not been limited. Eligible companies to receive credit under this Programme shall be Bulgarian legal persons and sole traders , who are private and at least 51% of their capital is Bulgarian. The companies shall have 50 full-time employees, at most.
The conditions on the credits for the SMEs include:
• efficient projects with good technical and economic proposals;
• size of the credit - from DEM 1 000 to 50 000 (or the BGN equivalent);
• term of the credit - up to 24 months;
• interest rate - 12-16% annually (for credits in DEM);
• 14-18% annually (for credits in BGN);
• collateral - flexible schemes, but corresponding to the Banks Act;
• technological time - simpler and faster procedure for allocating the credits;
• eligible companies shall have had a successful performance for at least 6 months.
Programme of the German Credit Institution
KfW for Funding of the Small Business in Bulgaria
According to agreements between United Sates Agency for International Development and United Bulgarian Bank, USAID guarantees the credit portfolio of UBB in its part for: funding of SMEs and funding of energy effective projects.
• 50% of the credit risk that has arisen in the process of funding shall be covered (only of the value of the principal). The annual interest rate shall be in the range of 14 and 16%;
• The size of the guarantee scheme for SMEs shall be USD 6 million. The size of the credits shall be within the range of:
- up to USD 5 000 for micro-enterprises with a personnel of up to 5 people;
- USD 150 000 for SMEs, whose assets, less the value of the real estate property, do not exceed USD 250 000,
The size of the guarantee scheme is USD 6 million with validity until November 2004.
The conditions are:
• covering 50% of the credit risk (only of the value of the principal), which has arisen in the process of crediting SME projects;
• size of the credit: up to USD 5 000 for micro-enterprises with no more than 5 employees;
• up to USD 150 000 for SMEs, whose assets less the value of real estate property do not exceed USD 250 000;
• annual interest rate - 14-16%;
• collateral - according to the common banking practice;
• SMEs-potential beneficiaries, shall be 100% Bulgarian private companies, registered under the Commercial Code and without capital or equity participation of foreign companies.
Business centres in Razlog, Vidin, Blagoevgrad and a business incubator in Gotze Deltchev shall be established. These structures support the small and medium-sized enterprises in the respective regions through training, information and consultations. The business centres offer as well financial aid through a micro-credit scheme in the city of Vidin and a leasing line in Gotze Deltchev. The project offers training for the start-up of own private business, applying the methodology and the training materials of the International Organisation of Labour. The local small and medium-sized enterprises, potential entrepreneurs and the unemployed, who want to start their own private business, can apply for it, too.
PROGRAMME START YOUR OWN BUSINESS. Training and financial support for a successful start in the business of unemployed, registered in the Bureaus of labour. The Programme shall be accomplished jointly by the National Employment Service and the BARDA Regional Business Centres in the municipalities of: Blagoevgrad, Gotze Delchev, Razlog, Dupnica, Haskovo, Stara Zagora, Karjali, Svilengrad, Kazanlak, Assenovgrad, Guarantee
Schemes of United Bulgarian Bank (UBB)
United Nations Development Programme and the International Labour
Organisation
Programmes of the
Ministry of Labour and Social Policy
Velingrad, Zlatograd, Karlovo, Madan, Pazardjik, Panagjurishte, Plovdiv, Berkovitza, Biala Slatina, Vidin, Vratza, Lom, Montana, Rousse, Razgrad, Silistra, Targovishte and Varna.
PROGRAMME FROM SOCIAL CARE TO REAL EMPLOYMENT. The programme is directed to unemployed people, who are receiving social care or have the alternative to go under social care, lonely mothers and other persons unequally positioned on the market of labour social groups.
PROGRAMME ENSURING EMPLOYMENT OF UNEMPLOYED PEOPLE THROUGH EMPLOYMENT ORGANISATIONS. The target of the Programme is to reduce the unemployment in the municipalities through providing opportunities for temporary and alternative employment of staff from industries under reconstruction and supporting the local authorities in the process of restructuring and preparation of enterprises for privatisation.
The specialised programme for the agriculture is to start this year within the framework of the allocated by the EC about EURO 52 million annually.
Priority sectors under the programme shall be:
• Improvement of the conditions for production, processing and marketing of agricultural production, forest and fish products, as per the European norms and standards;
• Integrated development of the rural regions for protection of their economic and resource potential and decreasing the rate of depopulation of these regions;
• Development of ecological agriculture and improvement of the environmental protection activities;
• Qualification and training of the workers in the process of production and processing of agricultural, forest and fish production.
Under this programme projects of private companies shall be funded up to 50% of their project value, and the remaining part shall be covered by credits by the State Fund Agriculture (which shall function under this programme as Payment Agency) and by co-funding of the beneficiary.
Programme Agricultural Start
The programme funds investment projects in certain directions sized up to BGN 15,000.
Programme Bulgarian Farm
The programme shall support the agricultural manufacturers in the accomplishment of their investment projects with loans of up to BGN 10 000 under the condition of minimum 10% own participation and maximum size of the credit of BGN 90 000.
Programme Development
Enhances the realization of investment projects of the value up to BGN 260 000 with own participation of minimum 30% of the total value of the project SAPARD
Programme
Investment Programmes of State Fund
AGRICULTURE
and maximum value of the credit of up to BGN 182 000.
Programme Mountain Agriculture
The programme supports investment projects in certain directions and the size of the credit is up to BGN 15 000.
Programme Eco-agriculture
Submits credits up to BGN 60 000 for realization of investment projects with a value of up to BGN 80 000 with own participation of the agricultural manufacturer minimum 25% of the project value.
Programme Young Agricultural Worker
Provides financial aid to agricultural manufacturers - physical persons aged up to 35 years, by investment credits of up to BGN 15 000.
Programme Greenhouses
The programme funds investment projects for new construction of greenhouses or purchase of ready ones of a value up to BGN 1 000 000 with own participation minimum 35% of the value and credit size of BGN 650 000 .
In 1995 government of Switzerland accepted a programme for support of small and medium businesses in the Republic in Bulgaria, whose realization shall be accomplished by the Swiss foundation FAEL. The foundation supports the development of independent private small and medium-sized enterprises in processing and services, going along with the production process and the market realization of agricultural products.
Within the framework of this programme and the contract signed between the Swiss Agency for Development and Cooperation and the United Bulgarian Bank a credit line shall be started under the project for support of the small and medium-sized enterprises in the semi-mountainous regions of the Central Balkan mountain - the regions of Lovetch, Gabrovo and Veliko Tarnovo.
Supports the development of independent private small and medium-sized enterprises in the processing of agricultural products and services, related to the production and the market realization through:
• Consultancy - consultancy support and training in corporate management and enhancing the quality of management;
• Credit support - preparation and presenting projects before the credit commission and monitoring the funds allocated;
• Technical assistance - providing information and consultations about technologies and innovations, organizing training and exchange of experience.
The size of the credit line is CHF 1 000 000 for the first three years from the start of the project.
Eligible companies under this credit line shall be SMEs, which are:
Programme of FAEL
Foundation Through
United Bulgarian Bank for
Encouraging of SMEs
• situated in the northern part of Central Balkan Mountain - semi- mountainous regions of Lovetch, Gabrovo and Veliko Tarnovo;
• have at least two years of business history;
• create new jobs;
• enhance the recovering and preserving the core business in the respective region;
• the project is in compliance with the requirements for environmental protection.
PSO Programme contributes to the development of the commercial relations and cooperation between Dutch and Bulgarian companies and represents a pool of activities, containing the following elements:
• technical support, which shall be expressed in restructuring, training and learning the methods of the modern management, marketing and production;
• investments in procurement and hardware, necessary for improving the production process;
• creating closer relations between Bulgarian and Dutch companies with the aim of starting joint business.
PSO+ Programme is an alternative to PSO Programme and is orientated towards companies from consortia of Dutch and Bulgarian companies, which have prepared joint projects. PSO+ Programme and the projects shall be connected with the investment of Dutch companies in Bulgaria or some other forms of sustainable cooperation with the aim of:
• promotion of innovations;
• establishing of long-term commercial relations;
• supporting the start up of new business activities;
• supporting the initiatives of Dutch-Bulgarian joint-ventures;
• supporting the know-how transfer and capital goods.
Beneficiaries under the Programme shall be companies from the following sectors: Agriculture, Transport, Energy and Environment, Industry.
The entrepreneurs, who have interest towards investments and joint activities, shall have a Dutch partner company, in order to apply for participation.
The funds under this programme are granted from the EC under the Financial Memorandum between the European Union and the Ministry of Industry.
Bulgarian National Bank. BNB (APEX institution) accumulates the funds and according to the contracts for their management the credits shall be submitted by the commercial banks: EXPRESSBANK, POST BANK,
CENTRAL COOPERATIVE BANK
Programmes of the Dutch Government -
PSO and
PSO+ for Economic Development
Credit Line for SMEs Under the PHARE Programme
Under this credit line funding is allocated for projects, which:
• are export orientated;
• create new jobs;
• develop the transport, industry, processing of agricultural production and tourism.
Not eligible for funding are projects in the sectors of agriculture, trade, and real estate property business.
Eligible for funding can be only investment projects of SMEs covering the following conditions:
• Size of the credit - up to EURO 100 000;
• Possibility of the beneficiary to co-finance not less than 25% of the value of the project;
• Maximum term of the credit shall be 5 years with an optional grace period up to 2 years;
• Interest rate - the trimestrial EURO LIBOR plus added value.
According to an agreement between the State Savings Bank and the Bulgarian Industrial Association, SMEs shall be funded. The credits submitted shall be in the range of BGN 5 000 to 50 000, with grace period of up to 3 years and an option for a negotiable grace period, annual interest rate of 14.5%. The credits shall be extended only for production purposes, on the condition of minimum 30% own participation of the SMEs.
Under the programme an expert support shall be provided for the development of a business plan and a credit reasoned statement.
Minimum 30% own participation is required. The credit shall be extended only for production purposes.
The programme supports entrepreneurs from the small and medium-sized businesses in the sectors of trade, services and the small-scale production to get a permanent access to financial aid.
Sole traders and small family businesses who need between BGN 900 and 3 600 may have access to loans without collateral by establishing self- managed co-operatives. There are no specific restrictions to small enterprises.. The programme acts in the region of Vidin and Sliven, and shall enlarge its action throughout the country. The first amount to be applied for by an enterprise is BGN 900; no collateral is required.