No property to mortgage? The guarantees worth more than real estate

1. The real hierarchy of security, as the bank calculates it

An owner instinctively ranks their collateral by market value. A bank ranks it by eligible proportion. These are two different hierarchies, and it is the second that decides.

Regulation no. 14-03 of 16 February 2014 fixes the share of each guarantee that is deductible in the provisioning calculation:

The second effect, often overlooked

Regulation no. 14-02 adds a separate mechanism: "where a risk is guaranteed by a third party, that risk is deemed to be carried on the guarantor up to the amount of the guarantee received" (Art. 8), with the guarantor's weighting applied; only the uncovered portion keeps the debtor's weighting.

In other words, an external guarantee does more than reduce provisions: it shifts part of the exposure outside your 25% ceiling. A mortgage shifts nothing — it remains security over your own risk. That is the difference in kind between security and a guarantee.

2. FGAR: what it covers, and who is excluded

The SME Credit Guarantee Fund was created by executive decree no. 02-373 of 11 November 2002 (OG no. 74), with its statutes reissued by executive decree no. 17-193.

The exact rate is set for each project and stated in the guarantee certificate issued by FGAR to the bank. The guarantee is granted only after the fund has analysed the project, and the definitive guarantee can only be issued once the bank has notified the promoter of its financing approval. FGAR also requires a detailed business plan meeting its own standards, and the bank continues to take security over the financed assets.

Exclusions — check before doing anything else

This is where applicants lose the most time. Excluded in particular are:

• projects whose financing package already benefits from a public support scheme;
• businesses that do not meet the definition of an SME under Law no. 17-02 of 10 January 2017;
• banks and financial institutions, insurance companies, listed companies, real estate agencies;
• import/export companies and businesses operating exclusively in trade;
• any project intended to refinance an existing debt;
• any business liable to harm the environment or the ecosystem.

3. CGCI-PME: ceilings, coverage rates and commitment thresholds

The SME Investment Credit Guarantee Fund was created by presidential decree no. 04-134 of 19 April 2004. Its financial guarantee is expressly described as "equivalent to a State guarantee" — which, under Regulation no. 14-03, places it in the 100% band.

Eligible credit

It covers tangible investment credit (furniture, property, equipment, fit-out) and investment credit financing start-up working capital, where the initial repayment term is seven years or less, including any grace period.

Each investment credit must be the subject of a separate guarantee application. The guaranteed credit is allocated solely to the purpose stated in the credit report, authorisation or credit agreement. One scheduling point not to miss: the credit to be guaranteed must not be fully drawn before the Fund's guarantee approval has been notified.

Who is eligible

• A company whose annual turnover excluding tax does not exceed 4 billion DA, or whose annual balance sheet total does not exceed 1 billion DA, with a headcount not exceeding 250;
• an independent company: capital not held 25% or more by one or more companies that do not meet the SME definition, except State investment funds;
• a company whose capital is held up to 49% by private equity firms.

Crossing a threshold only confers or removes SME status if it persists over two consecutive financial years — a useful rule for a fast-growing business.

Exclusions

Excluded are: commercial activities, the agriculture sector and the fisheries sector; companies with unrepaid credits under the ANSEJ, CNAC and ANGEM schemes; and projects benefiting from another financial guarantee on the same credit.

4. The delegated micro and small enterprise guarantee: decided at branch level

For the smallest structures, the guarantee decision is delegated to the bank's regional directorates and branches — which shortens the circuit considerably. The delegated decision is limited to a maximum credit of 50 million DA.

These definitions are those of Law no. 17-02. Here too, exceeding a threshold only removes micro or small enterprise status if it recurs over two consecutive financial years.

Eligible are all medium-term investment credits granted to micro and small enterprises in creation and in development, financing the production of goods and services — including regulated activities: medical, architecture and other independent professions.

Ineligible, by contrast, are: credits backed by the ANSEJ, CNAC and ANGEM schemes or by another financial guarantee; credits financing agricultural and fisheries activities; those financing real estate development; and those financing commercial activities.

5. Trade, import/export, agriculture: when no scheme applies

Cross-referencing the three schemes gives a clear result, rarely stated this plainly: purely commercial activities are excluded from all three, and import/export is expressly excluded from FGAR.

A dash means the document consulted does not list that activity among the scheme's exclusions — not that it is expressly admitted. To be confirmed with the body concerned before taking any step.

For these activities the package must then be built inside the eligible-proportion table of Regulation 14-03. The levers that remain available:

• Pledged deposits with the lending bank — 100% proportion. Expensive in cash terms, but unbeatable in prudential efficiency.
• A guarantee from a bank or a credit-insurance body approved in Algeria — 80%, more than a mortgage.
• A term deposit with another bank in Algeria — 80%.
• A pledge over the financed equipment, systematically required, which does not replace any of the above.

6. The conditions that make a guarantee actually count

Obtaining a guarantee is not enough: it must also be eligible within the meaning of Regulation no. 14-03. Its Article 13 sets cumulative conditions.

A security issued by a third-party institution must also have been notified to the lending institution and stipulated as allocated to its exclusive payment. As for vehicle pledges, they must cover new standard vehicles, duly registered and readily marketable.

7. Building your collateral package: the order that saves time

Observations from our advisory practice, not regulatory provisions.

1. Test eligibility before anything else. Sector of activity, SME definition under Law no. 17-02, absence of another guarantee on the same credit, absence of a public scheme already used. Five minutes of checking avoids weeks of review.
2. Think in eligible proportions, not market value. Add up your collateral after applying each item's proportion: that is the only total the bank will look at.
3. Put the external guarantee ahead of the additional mortgage. For the same effort it is worth double, and it shifts exposure outside your ceiling.
4. Check each item's compliance before offering it. Rank, completion, updated valuation, insurance in force: security that fails Article 13 counts for zero.
5. Watch the drawdown schedule. A credit fully drawn before the guarantee approval is notified may fall outside the scheme.
6. Do not stack two financial guarantees on the same credit. All three schemes expressly exclude credits already covered by another financial guarantee.

This article sets out the regulatory framework and the conditions published by the bodies cited; it constitutes neither legal advice, nor investment advice, nor a guarantee that financing will be obtained. Scheme parameters are subject to change: confirm them with the body concerned before any decision.

FAQ — Frequently asked questions

BENSAID Farouk

Financial & Economic Research Consultant — ProfitPilot NextGen Consulting

Certified sole trader and expert in financial studies, risk analysis and market research for SMEs, startups and investors in Algeria. View full profile →