Only two businesses availed themselves of a facility meant to ease the transfer of family businesses from one generation to the next, with only €98,000 being used of the €10 million pool of loans made available by BOV in collaboration with the Malta Development Bank (MDB).

In its annual report, the MDB explained that the scheme was launched in 2018, “in the context of a renewed emphasis by Government to foster and encourage family-owned businesses, including through a number of fiscal incentives in terms of the Family Business Act 2016.”

It was designed to enhance access to bank credit in respect of family business transfers to the next generation within the family. Through this guaranteed instrument, the MDB provided a guarantee fund capped at €4 million which enabled BOV to generate a loan portfolio of up to €10 million for such family business transfers.

The MDB was guaranteeing 80 per cent of each eligible transaction, subject to a capping of 50 per cent at the level of the portfolio.

The scheme wound up last year, with the MDB acknowledging that “take-up … was less than anticipated”.

“In line with the pre-set applicability terms, when the facility’s term of three years came to an end during 2022, only two facilities amounting to €98,000 were sanctioned,” it noted.

The MDB flagged “one critical condition” that eligible beneficiaries needed to first be recognised as family businesses by the Family Business Office, in accordance with the definitions of the Family Business Act.

“On the basis of a field research conducted in 2021, it appeared that such a condition was considered too onerous by prospective applicants [and] could have been one of the main reasons why the scheme has not taken off as well as projected.”

The scheme is now being absorbed under the ‘flagship” SME Guarantee Scheme (SGS), an €80 million uncapped portfolio guarantee scheme launched in November 2022, with the MDB providing a guarantee of 80 per cent on all loans in the portfolio of accredited credit institutions.

“This SGS shall enable the credit institutions to be more responsive to the borrowing requirements of smaller businesses, which, in turn, allows these businesses to fulfil their growth ambitions,” said the MDB.

“The SGS aims at enhancing SME access to bank credit for new investment as well as other purposes, including for working capital related to new investment and business transfers.”

SMEs eligible for the SGS are expected to benefit from enhanced access to credit (as insufficient collateral and lack of credit history will not remain an obstacle), better terms and conditions and a longer repayment period, and lower interest rates (as a result of the credit risk protection from the MDB’s uncapped guarantee).

The scheme is available to all economic sectors, but the MDB said it “will be encouraging and prioritising those investments that aim to build a greener and more digitally oriented economy”.

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