Business loans in Armenia: Business credit industry in Armenia

How easy is it to get business credit in Armenia?
Tower International Consultants > News > Business > Business loans in Armenia. How easy is it to get business credit in Armenia?

Business loans in Armenia. How easy is it to get business credit in Armenia?

Posted by: Tower International Consultants
Category: Business, Economy, Investments
Business Loans in Armenia

Official statistics states – there are 68 500 small and medium-size businesses currently operating in Armenia, and their number has not increased compared to last year mainly because of the COVID-19 pandemic impact. During the last several years the Government tried not only to facilitate the creation of enterprises but also to establish them so that they do not close.

The Government support

During the last two years, the Government of RA adopted a so-called “regions first” policy: state support for start-up businessmen is mainly focused on the regions.

Small and medium-sized businesses engaged in manufacturing operate mainly in the regions of Armenia, while those operating in the capital are more focused on providing services.

The Government mainly supports new business players in the financial sector. However, entrepreneurs are provided not only with a specific amount but with a guarantee for obtaining a loan from banks. This is done because banking and credit organizations don’t trust borrowers who are just starting their own business. With this policy, the Government becomes a Guarantee between business and banks. According to the Ministery of Finance representative, the ministry doesn’t provide a loan, but a guarantee so that banks are not afraid of the risks of non-repayment of money and draw up a loan.

In 2019 a total of 1.8 billion drams were allocated for the implementation of SME development programs.

To obtain a loan, businessmen, firstly, must undergo state-organized retraining courses and draw up a business plan. And if the program is realistic, they can get a government guarantee for a bank loan.
Until the current year, the state has guaranteed the return of loans by 100 percent, however, during negotiations, the government managed to agree with banks by 25-30 percent. These changes were made to triple the number of entrepreneurs applying for loans in banks in the future.

This policy allows actually to freeze the funds in the bank account so that if the small and medium-sized business representatives do not return the borrowed funds, the bank will not lose anything.

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Anticrisis actions for SME representatives

The global healthcare crisis changed the perspectives deeply. Businesses were affected strongly, especially the SME representatives.

Preferential loans for anti-crisis support have already been approved for 461 small and medium-sized businesses in Armenia. The total volume of their future loans is already 5.2 billion AMD or about $ 10 million.

With the first measure to neutralize the economic effects of the coronavirus, it is proposed to support individual businesses in Armenia with the means of co-financing of targeted loans, refinancing, and interest rate subsidies. Only one form of assistance applies to each business. It will allow businesses to gain time to respond to changing demand conditions, to continue operating accordingly, or to rearrange and adapt to the changing economic situation, as well as to refine development strategies.

0% loans for business. The government envisages 5 programs aimed at supporting businesses and mitigating the economic situation

The support is received by small and medium-sized businesses – those with a turnover of 24 to 500 million drams (up to a million dollars) in 2019 and working in industry, hotel and transport industries, tourism, and healthcare. Then support was organized for construction companies, private kindergartens, sports clubs, and other entertainment facilities, except for computer clubs.

Construction companies softened another requirement. Previously, the company’s turnover for any of the four quarters of 2019 could not be lower than 10% of the turnover for the whole year. This would show that the enterprise is running continuously. But then the threshold was raised to 70%, taking into account that travel companies operate mainly seasonally.

The requirement for a good credit and tax history for the last year has been preserved. The program can also be used by companies that have no tax debts not for the last 12 months, but as of December 31, 2019. However, in this case, when receiving a loan, they will have to pay a service fee of 1%.
To receive a business loan within the framework of the following five programs, any economic entity that meets the conditions provided by the program can apply to a financial organization, in case of which the borrower’s wish will be fulfilled by the rules established by this measure:

  • Co-financing of the loan – a certain amount of principal, the same term of the loan, 0% interest rate on the co-financing part, repayment of the principal amount of the loan, assuming partial risk, or
  • Loan refinancing in a certain amount of the principal amount (in certain cases defined by this measure, in full), with the same loan term, 0% interest rate, without risk of loan repayment, or
  • Loan subsidy in a certain amount of the loan interest (in certain cases defined by this measure, in full) for the entire loan term, without assuming the risk of loan repayment.

Author: Peproneh Badalyan | Linkedin
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