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Subordinated Loan

What is a subordinated loan?

In the long run, a subordinated loan is meant for sustainable companies that are oriented on growth and that the banks are not ready to finance due to low rate of self-financing, risky sector or insufficient collaterals.
Similar to the owner of the enterprise, KredEx will provide capital for the entrepreneur’s use.  Subordinated loan will conditionally enhance the enterprise’s equity capital before the eyes of the bank which, in turn, enables the enterprise to borrow additional amounts and develop faster. In addition to allowing mostly unobtainable financing, the KredEx non-interference in the management of the enterprise (unlike risk capital funds) will be positive for the enterprise.

A subordinated loan will help the enterprise if:

  • self-financing rate remains low before the eyes of the bank;
  • collaterals assets are not sufficient for a bank loan;
  • the enterprise will expand its activities to new areas and markets;
  • the enterprise will significantly broaden their activities (a large increase in turnover).

Terms and conditions of the loan

Terms and conditions for borrowers
  • The enterprise has been entered in the commercial register of the Republic of Estonia
  • The enterprise has no postponed payment debts
  • The enterprise is sustainable and solvent
  • The enterprise’s equity capital meets the requirements of the Commercial Code
  • The members of the management board and the owners are trustworthy, competent and with high reputation
Recommended financial figures of a loan applicant
  • The enterprise’s equity capital is at least EUR 64 000 and the equity share is at least 10% of the balance sheet
  • Liquidity coefficient is at least 0.8
  • Upon conservative estimate, DSCR (cover coefficient of the loan) is at least 1.1
  • During last three consecutive years, the turnover has not annually decreased for more than 5%
Intended purpose of the loan

The loan is aimed at financing of activities with a purpose to increase the competitive strength of a company by development or expansion, first of all:

  • A company invests in non-current assets with a purpose to make the core business more efficient than previously. A company launches a new or significantly improved product that remarkably differs from previous products by properties or way of usage;
  • A company implements a new or significantly improved production process, delivery method or an operation supporting production, the goal of which is an increase in the quality of the product, efficiency, flexibility, environment saving or safety of the above described supporting operation;
  • A company makes significant changes in its business practice, work organisation or marketing with a purpose to improve financial indicators (e.g. quality, efficiency, etc.);
  • Other activities necessary for quick growth of a company or aimed at a significant growth of turnover, whereas quickly growing companies are understood to be those whose growth in turnover within a period of three years is predicted to be 20% per annum in average.
Amount of the loan
  • EUR 64 000 - 1 100 000 but not more than the enterprise's equity capital at the time of issue of loan
Loan period
  • 3 to 5 years but not more than 10 years
Grace period
  • up to 3 years but not more than 7 years
Collateral
  • No collateral requirement depending on the enterprise's business plan and strength
Agreement fee
  • 1% of the loan amount, but generally no more then 10 000 euros
Interest                                    
 
 
  • Interest rate from 10%, consisting of two components is applied to the enterprise that has been active for at least 3 years and whose export turnover in the last or current economic year was not less than 20% of their total turnover: the fixed interest and interest dependable on the success of the enterprise. The turnovers of subsidiaries of the company, located abroad, are also included in the export turnover.
  • Interest rate from 11%, which might consist of two components, is applied to the enterprise whose export turnover in the last or current economic year was less than 20% of their total turnover: the fixed interest and interest dependable on the success of the enterprise. The fixed interest rate for the whole loan period can also be applied to the above-mentioned target group.

  • As a rule, fixed interest payments shall be monthly, share of the payable periodic interest is at least 2/3 of the total interest. Interest dependable on the success of the enterprise shall be paid in the end of the loan period.

Issuing of the loan
  • To be issued all at once or in multiple parts within 1 year from the entering into loan contract.
Contract alteration fee
  • 0.2% of the loan balance
Repayment of the loan
  • pursuant to repayment profile
Early termination of the loan contract
  • Contractual penalty shall be provided in the loan contract

 

The loan shall not be issued for the following activities and enterprises:

  • primary production of agricultural products, fishery and aquaculture and forestry
  • weapon, coal and tobacco industry
  • acquisition of means of transport and devices used in road transportation of goods
  • financing of operating capital of retail and wholesale entrepreneurs, including acquisition of stock
  • real estate project development loans for hiring-out and sales purposes. If real estate development is carried out for own (incl. activities non-related to affiliated and related enterprises) purposes, some of the premises will be allowed to hire out. In that case, hire receipts (excl. from subsidiary and related enterprises) may not exceed 30% of the loan recipient's annual turnover
  • investment loan shall not be issued to entrepreneurs of steel sector and synthetic fibre section
  • for activity connected with export directly related to exported quantities, creation and operation of distribution network or other current expenses based on export, if state aid is provided by issuing of loan
  • there are registered off-shore enterprises among the owners
     

How and where to apply?

In order to submit the loan application, one must complete the application form on the KredEx website, and include the following documents:
 
  • Finance forecast table on the KredEx form
  • Business plan
  • Interim report of the completed last financial year and of the current year
  • Curriculum Vitae of key persons in the enterprise


A loan application shall not be processed, if at the moment of submission of the loan application the equity of a company does not meet the requirements prescribed by the law, or if a company has poor payment practice in payment to creditors and state taxes.

More information can be obtained via phone +372 667 4100 or e-mail arikliendid[at]kredex.ee.

If it is desired to borrow a banking loan (in addition to a subordinated loan) for carrying out a business plan, it is advisable to contact the bank and KredEx at the same time, so that they can coordinate the loan terms and conditions with each other.

NB! Services offered by KredEx may include state aid, including aid with small significance.

A fixed interest subordinated loan issued under Enterprise loan state guarantees and capital loan program is in 2008-31.08.2015 being financed by the European Regional Development Fund.
Result-based subordinated loan issued under the Enterprise loan capital availability improvement additional support program will in 2009-31.08 be financed by the European Regional Development Fund in the amount of 25 564 659 euros.
 

Hobujaama 4, 10151 Tallinn, Estonia              kredex[at]kredex.ee  +372 667 4100