Moscow Offers New Way to Support SMBs

The Moscow Guarantee Fund provides companies with documentary credit guarantees.  

The Moscow Guarantee Fund has started offering a new support option for small and medium-sized businesses – documentary credit guarantees. The new measure will expand entrepreneurs' access to credit resources and further stimulate the development of small business in Moscow, said Alexey Fursin, head of the Moscow Department of Entrepreneurship and Innovative Development.

A documentary credit implies setting up a special banking account for trade operations. Such account is opened by the buyer at his or her own expense or on the terms specified in the respective loan agreement. The bank acts as a guarantor to ensure timely settlements between the buyer and the seller and protects all participants in the transaction. If the parties fully comply with the terms of the agreement, the bank pays the agreed amount to the recipient.

This scheme is considered to be one of the most reliable payment mechanisms. The buyer is guaranteed to receive goods or services without having to make an advance payment, while the seller is guaranteed to receive due payment. Documentary credits, for example, are often used by importers and exporters when the reliability of contracting parties cannot be readily and easily determined. The surcharge for issuing a documentary credit is lower than the lending rate.

“This financial product greatly facilitates commodity transactions and allows you to use state support without entering into a loan agreement. The guarantee covers up to 70 percent of the documentary credit, but not more than 100 million rubles. The interest rate is 0.75 percent per annum,” said Alexey Fursin.

The fund's guarantees make transactions more reliable, help minimize risks and motivate banks to issue documentary credits. In addition, entrepreneurs provided with the fund's guarantees can be eligible for documentary credits with deferred payment options, i.e when the seller is paid directly by the buyer's bank and the buyer reimburses the bank some time later.

The city has signed its first contract with an industrial construction company that also supplies local airports with special-purpose machines. The company applied for a documentary credit to purchase equipment worth more than 50 million rubles. The organization covered part of the transaction security thanks to the guarantee issued by the Moscow Guarantee Fund.

Eligible for documentary credit guarantees are Moscow's small and medium-sized businesses that regularly pay taxes and are not involved in the production of excisable goods, such as tobacco, alcohol, petroleum products and others. Applications for guarantees can be submitted at Moscow's state business services centers or online at the website of the Moscow Guarantee Fund.