Economic Development Bank President Luis Burdiel-Agudo unveiled Wednesday details of a new guarantee or insurance program for commercial loans to be provided by other financial institutions, including credit unions.
The new program will not replace financing products offered to small and medium – sized businesses, but will serve as a complement to maximize the institution’s available capital.
“The EDB’s role must evolve. As we have stated on previous occasions, we have to do things differently to adapt to Puerto Rico’s realities and economic challenges,” said Burdiel-Agudo.
“Through this guarantees or insurance program for commercial loans, our institution strengthens its role as an agent of economic development and promoter of entrepreneurship, in partnership with cooperatives and commercial banks,” he said.
Burdiel explained that the first step is the creation of an insurance fund, called BDEFS, that will initially feed from a capital injection that would come from the institution itself. The funds will be deposited in a perpetual trust.
The revenue guarantee program will be reinvested in the BDEFS as a capital contribution to ensure the program’s viability and expand its reach.
Loan insurance program revenues will come from three sources: initial income when granting credit facilities; annual income to renew credit facilities; and other contributions, he explained.
Disbursements will be made in accordance with regulations established by the EDB that will govern the business loans insurance program. The regulations will set the maximum and minimum limits of eligible funding, specific economic sectors to be encouraged in line with the Economic Development and Commerce Department’s strategies and the government’s Plan for Puerto Rico, the maximum percent of balance to be guaranteed, the applicant’s minimum credit requirements and the duration of the warranty.
“The government’s fiscal situation is a challenge that presents opportunities to adopt new initiatives to make better use of limited public funds available without compromising our role to stimulate economic activity,” said Burdiel-Agudo.
“The EDB’s role is to be a credit facilitator to entities that do not qualify under traditional commercial banking standards and are under the framework of the public policy aimed at maintaining sustainable economic development for Puerto Rico,” he added.