Upfront Guarantee :

A useful alternative to the supplementary

guarantee

Cédric Bovy – Litigation Officer, SOWALFIN

1 Context of Sowalfin

Group

About Wallonia

- Covering a territory of 17,000 km² and home to 3,560,000

people

- Wallonia: About 100,000 enterprises among which more

than 90% of micro-enterprises (employing between 1 and 10

persons)

- GDP 2013 : EUR 84.651 millions

SOWALFIN SOWALFIN is a public limited company created by the Walloon

Government in 2002. Its main shareholder is the Walloon Region.

The company aims to promote the creation, development and

transfer of SME’s in Wallonia by providing specific and tailored

financial products, acting as a one-stop-shop dedicated to the

public financing of SME’s.

Around 1.3 billion € is dedicated to walloon SME financing.

Target:

SME criteria :

- < 250 employees:

- Turnover below EUR 50 millions ;

- or total balance sheet below EUR 43 millions ;

and not being considered as being in financial difficulties

according to European criteria

SOWALFIN

(SMEs)

Guarantee and cofinancing with banks

Risk capital

(9 Invests)

Subsidiaries

SOCAMUT

Micro-entreprises and self employed

SOFINEX

Exports

NOVALLIA

Innovation

SOWACCESS

Business transfer

The Group

Three main financial activities :

- Partial (up to 75%) and additional direct guarantee (and counter –

guarantee) on bank loans

- Cofinancing (beside bank loans) through subordinated loans

- Venture capital through the coordination of 9 public investment

funds

Subsidiaries:

-SOCAMUT: financing micro-enterprises and self-employed

(micro-credit)

- SOFINEX: financing exportation and internationalisation of

Walloon SMEs

- Novallia: financing innovative projects within SMEs

- Sowaccess: business transfer platform

International:

- Transeo: European association for business transfer

3

La garantie et le

cofinancement

sous forme de

prêt subordonné

de la SOWALFIN,

maison-mère

Direct guarantee for

SMEs 2

Partial : 75% maximum of a bank loan

Supplementary : after realization of the collaterals on the bank

loan according to a sharing loss principle

Term : maximum 10 years

Fee (paid « one-shot »):

same term as the bank loan (with a max. of 10 years): annual

guarantee fee of 1 %

Shorter term (with a min. of 1 year): annual guarantee fee of

1,10%

Amount : Maximum EUR 1.500.000 per guarantee (de minimis

European Regulation).

Upfront guarantee: fixed amount and not % (max 25% of a bank

credit with a maximum of EUR 500.000) for investments in

tangibles assets (real estate, machinery, …)

Guarantee on bank loans

Granted guarantees as of December 31, 2013

• EUR 430,1 millions covering bank credits amounting to EUR

1.021,71 millions

• 2.498 SME’s

Outstanding amounts as of December 31, 2013

• 918 SME’s for an outstanding amount of EUR 121,93 millions

Per year

350 projects approved by our Credit Comittee

Guarantee since 2002

3

La garantie et le

cofinancement

sous forme de

prêt subordonné

de la SOWALFIN,

maison-mère

Principles of the

Upfront guarantee

and comparison with

the supplementary

guarantee

3

Guarantee consists of a fixed amount, not a percentage

Fixed amount : maximum 25 % of nominal amount of the bank loan with a maximum of € 500,000

Investments in tangible assets only (eg. buildings, equipment goods,…)

Value of collaterals (estimated by bank) must be superior or equal to the nominal amount of the SOWALFIN upfront guarantee

No full coverage of the bank’s net risk at credit issuance

Maximum term : to be determined case by case. Nominal

amount of upfront guarantee must never be over 80% of the

remaining balance of the bank loan (European obligation).

Fee: 1.50% of nominal amount of the upfront guarantee

multiplied by duration of the guarantee in full years.

Guarantee not supplementary => direct payement of guarantee

in case of termination of credit or eg. bankruptcy,…

Comparison between the supplementary guarantee

and the upfront guarantee

Supplementary guarantee Upfront guarantee

Bank loan (15 y term) € 1,000,000 € 1,000,000

Mortgage (estimated value

of building)

€ 650,000 € 650,000

Bank’s net risk € 350,000 € 350,000

SOWALFIN Guarantee 50% - 6 years € 175,000 - 6 years

Fee rate 1.10% 1.50%

Fee € 27,500 € 15,750

Bank final risk at credit

issuance

€ 175,000 € 175,000

Case 1 : realization of building € 650,000

Supplementary guarantee Upfront guarantee

Credit remaining balance at

termination

850,000 850,000

SOWALFIN guarantee 175.000

Realization of building 650,000 650,000 (850,000 – 175,000)

Non covered risk 200,000 (850,000 – 650,000) 25,000 (850,000 – 175,000 – 650,000)

SOWALFIN guarantee 100,000 (200,000 x 50%)

Bank final loss 100,000 (200,000 – 100,000) 25,000

Case 2 : realization of building € 675,000

Supplementary guarantee Upfront Guarantee

Credit remaining balance at

termination

850,000 850,000

SOWALFIN guarantee 175,000

Realization of building 675,000 675,000 (850,000 – 175,000)

Non covered risk 175,000 (850,000 – 675,000) 0 (850,000 – 175,000 – 675,000)

SOWALFIN guarantee 87,500 (175,000 x 50%)

Bank final loss 87,500 (175,000 – 87,500) 0

Case 3 : realization of building € 600,000

Supplementary guarantee Upfront guarantee

Credit remaining balance at

termination

850,000 850,000

SOWALFIN guarantee 175,000

Realization of building 600,000 600,000 (850,000 – 175,000)

Non covered risk 250,000 (850,000 – 600,000) 75,000 (850,000 – 175,000 – 600,000)

SOWALFIN guarantee 125,000 (250,000 x 50%)

Bank final loss 125,000 ( 250,000 – 125,000) 75,000

Example : a subordinated loan (SOWALFIN)

together with an upfront guarantee on a

bank loan

An industrial small company takes the opportunity to buy

a warehouse – price: € 870,000 + additional costs €

130,000

- Own share: € 100,000

- SOWALFIN subordinated loan 10 years : € 100,000

- Bank loan 15 years : € 800,000 with upfront guarantee

of 25% for 5 years => € 200,000. Fee € 15,000. Credit also

covered with other collaterals as mortgage and mortgage

mandate, estimated to € 522,000.