The Thai Credit Guarantee (TCG) Corporation plays a significant role in the funding of small to medium sized enterprises (SMEs), and has had particular impact during the pandemic. The TCG operates with an aim to:
✓ assist small enterprises in obtaining a greater amount of credit from financial institutions;
✓ strengthen the confidence of financial institutions in providing credits to small enterprises;
✓ accelerate the credit extension to small enterprises throughout the country; and
✓ assist in the achievement of the small industry development target under the National Economic and Social Development Plan.
The TCG operates Credit Guarantee Schemes (CGSs), which have emerged to lessen the financial constraints on SMEs, governments, NGOs, and the private sector. Many SMEs face difficulties securing funding for their business, and commercial banks are often reluctant to provide loans to SMEs due to information asymmetry. SMEs can often struggle to demonstrate their creditworthiness when attempting to borrow money, and a lack of appropriate accounting records and collateral leads to uncertainty as to the expected rates of return and integrity of the prospective borrower. Additionally, obtaining information to fill this administrative gap can be expensive for smaller businesses, which are already more vulnerable in times of economic hardship.
To further assist SMEs, in March 2021, the TCG announced the launch of the Bad Debt Guarantee program for SMEs. The program covers:
✓ SME loans that turned into non-performing loans (NPLs) overdue by more than 90 days – but must not exceed two years of overdue payment;
✓ SME loans that turned into special mention loans, defined as loans overdue by no more than 90 days;
✓ Maximum claims of 40% to financial institutions that are creditors of SME loans.
In September, Wasukarn Visansawatdi, acting General Manager of TCG, stated that the TCG will provide guarantees to micro-businesses, SMEs and major corporations. The TCG is still open to requests for the loan guarantee until 9 October 2023. Those loan guarantees will enable micro-SMEs and SMEs to access loans of up to 50 million THB. The TCG will charge a guarantee fee of 1% of the loan amount for the first four years. This 1% guarantee fee will also apply for the first two years with a maximum loan guarantee of 150 million THB. If the SME and micro-SME loans become non-performing loans (NPLs), the TCG will provide full compensation to cover the damages to lenders. To be an eligible applicant, the prospective party must be an individual or juristic person with a business registered in Thailand.
The guarantee application procedure has four steps:
Generally, foreigners wanting to secure a bank loan must hold at least a one-year work permit or Thai permanent residence (this can vary depending on individual bank policy). The following is a non-exhaustive list of criteria that foreigners may need to comply with in order to obtain a loan from a financial institution in Thailand:
✓ Proof of employment for a stable and secure job, and payslips;
✓ Pass a creditworthiness check;
✓ Total income must be at least three times higher than each instalment;
✓ The aggregate amortization of the loan must exceed seven years (for some banks);
✓ Most banks ask that the applicant must earn 3 times the amount of monthly loan repayment (which is an important financial element to consider).