The agreement, brokered within the framework of the European Commission's small- and medium-sized companies financing arm, will see 15 million euros of the total go to Latvia and to companies operating in the least developed parts of the country in particular.
"We expect this project to make lending to small- and medium-sized enterprises sustainable in Latvia," said Helle Gerth, an adviser with the European Commission's Latvia delegation.
"The largest part of these loans will go to companies outside Riga to improve the employment situation in the less developed regions."
Companies in the European Union with 250 employees or less account for two-thirds of all employees, a stark contrast with Latvia where small- and medium- sized companies often face an uphill struggle for survival, Gerth said.
The European Commission's project, which was established in April 1999, aims to come to their aid.
Priority will be given to manufacturing, tourism, power-saving projects, environmental protection, construction, trade and service sectors while eligible projects could include the purchase or renovation of buildings and the purchase of equipment, machinery, patents or licenses and other intangible assets.
Although small- and medium-sized companies are key economic players, they often lack collateral and banks usually set very tough conditions when granting them loans, said Ingrida Bluma, president of Hansabanka in Latvia.
"These companies are the most risky borrowers, as they're most sensitive to market changes," said Bluma at a signing ceremony on Feb. 20.
Under the new lending program 40 percent of Hansabanka's loans to small- and medium-sized enterprises will be guaranteed by the German bank, which in turn will receive some financing from the Council of Europe Development Bank.
The plan will not just mean lower interest rates for borrowers.
A 2 million euro grant will help cover the bank's expenses, thus reducing charges to the borrower to around 1 percent of the total loan value.
"The main benefit of this program is that these companies will be able to receive loans, as the risk factors will be taken away," Bluma said.
Loans will be extended for 10 years with a three-year grace period and the maximum individual loan will be 250,000 euros.
The plan is the second granted by Kreditanstalt fur Wiederaufbau and the Council of Europe Development Bank and follows the success of a 23 million euro credit line granted to the Latvian state-owned mortgage bank Hipoteku Banka in December 2000, said Uvis Legzdins, head of Hipoteku Banka's credit department.
That project created 1,700 new jobs in Latvia, said Legzdins.
"Since then we have granted more than 23 million euros to small- and medium-sized companies, and the first creditors have already started to return the money," said Legzdins.
But the main borrowers under that project are located in Riga and other major cities.
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