A new Act on the financing of SMEs is imposing creditors and credit intermediaries to be more transparent concerning information they are required to provide SMEs wishing to take out a loan. This will make it easier for debtors to make a choice with regard to credit terms on one side and securities and guarantees on the other.
In a previous article, we had already announced that a preliminary draft Law on the financing of small and medium-sized enterprises had been approved by the Council of Ministers.
Upon evaluating the Law of 21 December 2013 on the financing of SMEs, several problems had been detected. The new Law of 21 December 2017 amends a number of provisions of the Law of 21 December 2013 in order to solve said problems while pursuing the original objectives.
This Law was published in the Belgian official Gazette on 29 December 2017.
We briefly summarised the amendments introduced by the Law of 21 December 2017.
1. The law only applies to SMEs
In order to be qualified as an SME, and to be subject to this Act, a company must meet the criteria set out in the Belgian Companies Code. SMEs are legal entities which, on the date of the last-closed balance sheet, do not exceed more than one of the following limits :
- average number of employees : 50;
- annual turnover (VAT excluded) : 9,000,000 euros;
- balance sheet total: 4,500,000 euros.
The Law adopts the definition of a company as described in the Code of Economic Law: "any natural or legal person pursuing an economic goal in a durable manner, as well as its associations". This definition also entails liberal professions.
Credit granting to a company belonging to a group of related companies will only be affected by legislation on the financing of SMEs only if the group of companies meets the criteria of a small company in accordance with the Belgian Companies Code on a consolidated basis.
2. The pre-contractual information obligations
The provisions of the Law of 21 December 2013 on the obligation to provide information were amended in order tot clarify matters.
At the time of the financing request, the creditor or the credit intermediary must give the company a written overview of all the different forms of financing that they can offer and that could be appropriate for the SME.
At the time of the financing offer, they are required to supply any information or other useful means that can improve access to financing for the SMEs. This must happen in a manner stipulated by Code of Conduct drawn up by the respective interprofessional organisations representing self-employed persons and SMEs, and by the organisation representing the financial sector.
The company must be given a draft of credit agreement. Previously, this had to be requested by the company itself, but it is now automatic and free of charge.
3. Less stringent conditions regarding microloans
In order to facilitate the process, the aforementioned obligations do not apply to financings below EUR 25,000, so long as a reinvestment fee clause is not included and the financings are not subject of securities or guarantees.
4. Securities and guarantees
Should the creditor submit the granting of credit to the establishment of a security or a guarantee, the creditor or the credit intermediary must inform the company of the main characteristics of said security or guarantee and its impact on the credit application. This must happen transparently and in phrasing that can be understood by the company, whether it be in writing or orally.
Requesting partial or complete release of the security or the provided guarantee must be substantiated and any refusal to do so must be justified.
Partial or complete release of the security or guarantee may be requested, providing the credit has been partially or entirely repaid. The creditor or the credit intermediary may refuse to release it. In that case, the entrepreneur or the interested third party must inform the company about the key elements on which that refusal is based or which have influenced the risk assessment, while also being transparent and in phrasing that can be understood by the company.
5. A potential exemption for co-debtors
The SME Financing Law does not apply to credit agreements signed by multiple debtors, if at least one of the debtors is a company that, at the time of the credit application, does not meet the criteria stipulated in the Belgian Companies Code. The criteria have been listed under item 1.
6. Adjusted reinvestment fee
The initial amount of credit for which a reinvestment fee,- a compensation due in case of an early refund -, can be contractually agreed upon between lender and company, will rise from 1 to 2 million euros, provided that the amount of the reinvestment fee does not exceed the amount calculated according to the calculation methods set out in the Code of Conduct.
This means that the reinvestment fee, if stipulated, may contain up to six months of interest, calculated on the refunded amount and at the rate stipulated in the contract, regarding loans to companies whose initial amount does not exceed 2 millions euro.
The law also states that no compensation is due in the event of change in the securities and guarantees attached to the credit, unless this change would result in a discontinuation of the financing.
7. A new 'abusive' clause
Lastly, a fourth in any case 'abusive' clause was added to the list of the prohibited clauses, namely that the creditor has the right to unilaterally alter (at the expense of the company) the interest rates, costs, provisions or other indemnities that were actually applied, in a way that does not meet the specific and objective criteria that were explicitly incorporated in the credit agreement.
This new Law aims to amend the law of 21 September 2013 following the evaluation of its practical application. The objective of the legislator has remained the same: facilitating the process of granting credit to companies, balancing the contractual relationship between creditor and company, and to ensure transparency.
It has come into force on 8 January 2018 and will apply to all credit agreements signed from that day onward.
Pursuant to this new law, the Code of Conduct will have to be revised by the representative organisations of the self-employed persons, of the SMEs and of the financial sector respectively.