Is it possible for a micro, small or medium company to obtain credit/financing and participate in procurement processes/adquisitions?

Jul 4, 2016 | English Blog

Many times it is difficult for micro, small and medium companies (MIPYMES in Spanish) to obtain credit or financing in order to, among others, improve their competitiveness or to be able to participate in procurement processes, due to lack of capacity to provide collateral or guarantees to ensure such credits or financing; or guarantees required in the procurement processes or acquisitions.

However, this difficulty can be overcome through a Mutual Guarantee Company (SGR in Spanish). Some may wonder what a SRG is? Well, in the case of Nicaragua, it was created by Law 663, Law of the System of societies of Reciprocal Guarantee for Micro, Small and Medium Enterprises, published in La Gaceta Diario Oficial No. 173 of September 8, 2008 and its Regulations in Decree 71-2008, published in La Gaceta Diario Oficial No. 49 of March 12, 2009. The purpose of the Law 663 is to regulate the establishment and operation of this corporate type, which aims to provide micro, small and medium enterprises, access to financing, and allow them to participate in contracting and procurement process being public or private, through guarantees, bonds and other guarantees.

These companies are of a mercantile nature, and may use any name they deem appropriate as their corporate or commercial name, as long as the name does not belong to another company and indicates “mutual guarantee” or its abbreviation “SGR” (in Spanish) which is exclusive of this type of company at the end of its name. According to Law 663, these companies must be of variable capital and its constitution must be approved by the regulatory authority (which is integrated by the Ministry of Development, Industry and Commerce, Superintendence of Banks and Other Financial Institutions and the Central Bank of Nicaragua), after complying with the requirements that Law 663 establishes, which among others includes the presentation of the draft of the Articles of Incorporation and the receipt of the deposit of 1% of the minimum capital of the company, which will be deposited into the regulatory entities account . It is important to mention that if the application is rejected, 10% of the value of the amount deposited will be retained for the development of mutual guarantee companies and the remaining amount will be returned to the applicants. If it is authorized, this should be inserted in full form in the Deed of incorporation, if not, it could be void, and the Commercial Public Registrar can refuse to proceed with its registration.

It is worth mentioning that this type of corporation has two types of partners: Unitholders partners, whom are natural or legal persons who belong to the SGR sector and incorporated participating in the capital of SGR; and protective partners, who are natural persons or corporations, domestic or foreign, public, private or mixed participating in the capital of a SGR. In the latter the protective partners are providing financial support to the SGR and solvency against third parties. We must take into account that according to the aforementioned Law, in order to incorporate a SRG it is necessary that the act of incorporation have at least 50 participating partners and at least one protective partner. Also, it should be noted that the SRG can only give guarantees, bonds and other guarantees on behalf of its participating partners, which means that in order to qualify for guarantees, bonds or other securities they must be a member to participate in the SRG, and the same cannot be for an amount greater than 5% of the share capital of the SRG, and to be granted it first hast to comply with the formalities required by the SRG.

Also, in addition to the above mentioned within the operations and services a SRG can perform, are to: Provide training and technical, economic and financial advice; contract re-guarantees to cover the guarantees granted to its participating partners; invest its liquid assets in Securities, shares, and other instruments of public or private offering; make deposits with financial institutions; perform the similar and related operations of its ordinary course and in compliance with the object prescribed by law, the articles of incorporation and bylaws of the SGR; make agreements with financial institutions to facilitate access to credit for their partners; participate, as partner in the creation of re-guaranties companies (RSGR in Spanish) along with other protective Partners of the SGR and other operations approved by the regulatory entity. As can be observed, this type of corporation is very innovative on the scope of it because it will favor MIPYMES by offering them financial benefits that are more favorable than the conditions offered by the general market .