Business Start-up Loans (Prêt de lancement) - Belgium

Source: Federal Government of Belgium

• Objective
• General Principles
• Financial Resources
• Evaluation

Objective

The purpose of the measure is to encourage the completely unemployed receiving benefits to create or restart a business or become independent workers by granting a loan intended to cover the costs of undertaking this step. In order to accommodate the wishes of unemployed persons who have a basic education or an appropriate specialist knowledge to take up self-employment or to establish a company, the opportunity was created for certain unemployed persons to capitalise, up to a certain amount, on the future unemployment benefits to which they are entitled.

General Principles

This measure is based on the Law of 28.7.1992 (MB of 31.7.1992) and the Royal Decree of 22.12.1992 (MB of 13.1.1993).

In order to be able to avail of the conditional loan, the unemployed person in receipt of benefits must establish a main occupation in one of the following ways:

• he becomes self-employed and works alone;
• he becomes self-employed and joins up with a partner - either already employed or unemployed - in order to create or take over an enterprise in the form of an organisation having no legal capacity, or a company in which he becomes the active partner;
• he becomes self-employed and becomes the active partner of an existing organisation or an existing company.

The conditional loan will only be granted if the unemployed person:

• fulfils all the regulated (through laws and orders) requirements for the practice of the intended occupation;
• has been drawing, at the time of applying for the loan,, unemployment benefit or waiting allowance for an uninterrupted three-month period for all days of the week in the 6 months prior to the application;
• makes his own funds, or resources from another loan, available in advance, which are equal to 25% of the amount of the loan to be granted.

The loan is exclusively granted in order that the borrower is in a position to carry out an activity which has not been ruled out by the Ministries of Finance, of Small Businesses and of Employment and Labour. The Ministerial Decree of 17.2.1997 (MB of 27.2.1997) lists the occupations for which no loans will be granted.

The conditional loan is granted in the form of a credit and covers wholly or partially the material and non-material investments, the financial investments and the required company funds, including starting-up resources. Before any funds are made available, the person taking out the loan must produce both evidence that he is no longer receiving benefits from ONEM and written confirmation on the waiting period.

The normal term of the loan is 10 years. The Cofinancing Fund may grant an extension of between 3 and 5 years for repayment. The maximum amount of the loan is BEF 800,000. The standardised interest rate is determined by the administrative council of the Cofinancing Fund and may not be below 5% of the usual interest rate on the capital market or below 3% annually. The interest rate can be changed after 5 years.

Each loan application is submitted to the governing body of the Cofinancing Fund, which makes a decision based in particular on the following criteria:

• creditworthiness of the applicant;
• vocational qualifications of the applicant;
• technical, economic and financial worth of the project for which the loan application is made;
• viability of the enterprise; in the case of an already existing enterprise, its viability is proven on the basis of the submission of the annual accounts, the operating costs and the results, the tax assessments of the previous 3 years and, if applicable, the substantiated forecasts with regard to the expected results of a credit granted by the Cofinancing Fund; in the case of a new business, viability is proven on the basis of a starting balance and a substantiated income and expenditure prediction.

In case the borrower ceases his activities for one of the reasons jointly laid down by the Ministries of Finance, of Small Businesses and of Employment and Labour, the Cofinancing Fund will not demand repayment of the outstanding loan balance, except in the case where the cessation of business activities occurs more than 5 years after the end of the waiting period, or the borrower is found guilty of violating certain laws. The Ministerial Decree on implementing Article 25, § 3, of the Royal Decree of 22.10.1993 (MB of 13.11.1993) stipulates that the Cofinancing Fund may only demand repayment of the outstanding loan if the cessation of the independent business activities can be traced back to one of the following reasons:

• bankruptcy or liquidation or the death of the borrower;
• force majeure or the lack of viability of the borrower's independent business activities that has been proven over a period considered to be sufficient for prognosis; the lack of viability must be fully independent of the will of the borrower and must be substantiated by all means possible, and at least through the presentation of the enterprise's profit and loss accounts.

The Royal Decree of 17.2.1997 (MB of 25.2.1997) broadens the tasks of the Cofinancing Fund to include financing of training and guidance for the full-time unemployed recipients of unemployment benefit to whom the fund grants a conditional loan. Thus, beneficiaries now enjoy supportive measures in the area of business economics for the enterprises they are starting up.

Financial Resources

The Cofinancing Fund's own resources, which are derived from repayments on the capital of loans already granted and the interest on such loans, enable the system to finance itself.

Evaluation

Being a financial measure, quantitative information on management has been recorded since the beginning of the measure. On the other hand, qualitative information on the specifics of the projects and the recipients of the loans, though available in the files, have never been systematically indexed. Consequently, the evaluation had to be completed on the basis of random samples from the population concerned.

During the first three years of the measure, from 1984 to 1986, the loans were granted depending on relatively broad criteria which were later on refined and tightened. Consequently the acceptance rate of loan applications gradually decreased from 66% to 50%, stabilising since 1991 around 40%.

On average about 65% of the businesses are still active after five years and about 40% after 10 years. Compared to the survival rate of corresponding businesses in general, the survival rate of these businesses supported by the start-up loan is better. The normal "disappearance" rate is about 23% after two years, corresponding a proportion which is reached only after three or four years when the businesses are supported by the start-up loans.

On the qualitative level, a study undertaken in June 1993 tried to indentify the factors likely to support the longevity of the businesses. No factor, neither relating to the characteristics of the business itself nor to those of the unemployed person concerned, could be highlighted except for one, namely the continuous training of the unemployed, which reduces the risks of failure significantly. The same study also indicated that the selection procedure of participation was efficient.

The royal decree of 17 February 1997 added the financing of the training and support of the loan recipients in the management of their enterprise. A broad publicity campaign advertising the recent adjustments was launched during the second quarter of 1998. A new revival of the measure can be attributed to this campaign.

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