These days, not only developing a business, but also maintaining it is a major challenge for an entrepreneur. The same is true for farm owners. The entrepreneur or farmer’s own financial resources do not always allow him to meet such a challenge. Often, therefore, the entrepreneur or farmer considers the possibility of using financing offered by banks, factoring or leasing companies.
However, taking out a loan from a bank involves two basic issues, i.e. – the need to provide collateral that will be acceptable to that bank, – the obligation to pay interest, which increases the cost of doing business.
To address the above issues, given the current credit offerings available to the agricultural and processing industry, it is worth considering the possibility of using collateral in the form of a guarantee from the Agricultural Guarantee Fund (FGR). With this guarantee, it is not only possible to obtain a loan on more favorable than standard terms, but also to receive a surcharge on the interest of a working capital loan to finance current operations, for the first 12 months.
Based on a recent survey of the effects of this program, which was published on the BGK’s Expertise and Research page (April 2023), we know that 41 percent of the entrepreneurs and farmers surveyed say that loans backed by the FGR guarantee for the agricultural sector have contributed to an increase in their turnover. As the results of this survey show, borrowers’ satisfaction with support in the form of a guarantee, which in addition also allows them to benefit from an interest rate subsidy, is growing. As many as 93 percent of borrowers would recommend this type of support to their friends as farmers and agricultural processors.
What is this BGK guarantee?
The guarantee is a collateral for the loan and can serve both farmers and micro, small and medium-sized entrepreneurs, operating in the agri-food processing industry or marketing of agricultural and non-agricultural products.
Its main purpose is to support farms and agri-food processing companies in accessing financing. It reduces the effects of the lack of adequate (from the point of view of lending banks) collateral, among other things, due to restrictions on enforcement of the farmer’s assets. Therefore, funds from a loan secured by a guarantee can be used not only for current operations, but also to finance the implementation of investments related to the modernization and development of farms, as well as the cost of investments in the processing/marketing and development of agricultural or non-agricultural products.
The guarantee can secure up to 80 percent of the loan principal, and its value can be up to PLN 5 million for farmers or up to PLN 10 million for entrepreneur-processors. The guarantee is provided under the formula of public aid. All the formalities related to its granting are carried out at the lending bank, which also evaluates creditworthiness and makes the decision to grant financing.
The subsidy granted consists in the BGK covering part or all of the interest charged by the lending bank during the first 12 months. Since mid-2022, its amount has been increased and is now as much as 5% of the loan value.
For more information on BGK guarantees and a list of lending banks where individual guarantees are available, visit www.bgk.pl.
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Bank Gospodarstwa Krajowego (BGK) is a Polish development bank, the only such institution in the country. BGK supports the sustainable social and economic development of Poland. Its activities influence job creation, housing construction, infrastructure development and improvement of air quality. The bank cares about future generations – it builds social capital, develops entrepreneurship and provides responsible financing. It is present in every region of Poland, as well as abroad – it has representative offices in Brussels, London, Frankfurt am Main and Amsterdam. BGK supports exports and foreign expansion of Polish companies. It is the originator, co-founder and main shareholder of the Tri-Morocco Fund, which invests in transportation, energy and digital infrastructure in the countries of the Tri-Morocco region. BGK, through cooperation with business, the public sector and financial institutions, responds to economic needs and undertakes a number of initiatives to promote sustainable development.
The article appeared in the December issue of Business HUB magazine.
Downloadable online version of the latest issue (in polish version): HERE.