How ICO loans work
Financing for the self-employed and businesses, with competitive interest rates and a term of up to 20 years
The way that an ICO loan works is not very different from the way that a ‘traditional’ bank loan does. The difference, however, is that an ICO loan involves three parties: The Official Credit Institute (Instituto de Crédito Oficial or ICO in Spanish); the credit institution; and the applicant, which may be a small-medium business, a self-employed worker, or even a public entity.
The ICO is the party loaning the money and it establishes the terms and conditions for qualification, while the credit institution analyzes the feasibility of the loan, manages the money being lent, and assumes the risk of any failure to repay by the customer. As with any other loan, the individual or business receiving the money is required to repay it over the stipulated time period, along with the agreed-upon interest.
In summary, this is a system of mediation that allows small-medium businesses and the self-employed to access a series of financing lines, each with its own characteristics. There are currently five of these lines:
- ICO Business and Entrepreneur: designed primarily for the self-employed and companies that need liquidity or want to invest in their production capacity inside of Spain. This line also includes financing for public entities and homeowner associations.
- ICO RGC/SAECA Guarantees a line designed for the self-employed, businesses and public or private entities that have a guarantee from a Reciprocal Guarantee Company (RGC in Spanish) or from Spain’s National Agricultural Security Corporation (SAECA in Spanish).
- ICO Commercial Credit: Designed for the self-employed and companies that need access to liquidity by means of an advance on their accounts receivable.
- ICO Exporters: focused on the self-employed and companies that need access to liquidity by means of an advance against payment of invoices from their exporting activities, or to finance the up-front production costs for their goods or services destined for foreign markets.
- ICO International: This line has two modalities: one for the self-employed, companies, and public or private entities that need liquidity or want to invest; and another for Spanish or foreign companies that want to finance their buying/selling of goods or services.
These financing tools are intended to promote the creation of new companies that will do business both within Spain and in foreign countries. Some examples of projects eligible for ICO financing include:
- Acquisition of private vehicles with a cost that does not exceed €30,000.
- Provision of up to 100% of the liquidity needed to cover current expenses.
- Advances against payment of invoices coming due in not more than 180 days.
- Acquisition of companies.
- Creation of companies abroad.
- Covering the costs of producing or providing goods or services for export.
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Financing limits and terms and conditions for ICO loans
The maximum financing option available and its repayment terms will vary depending upon the line selected. As a general rule, the maximum amount loaned by the ICO is 12.5 million euros, with a maximum repayment period of 20 years. However, most of the loans extended are for 25,000 euros or less and are granted to small-medium businesses and microenterprises.
As far as the interest associated with these loans, there may be a fixed rate with a payment every two weeks, or there may be a variable rate: this consists of the 6-month Euribor plus a margin.
- For loans of 1 year, up to 2.3% will be added.
- For loans of 2-3 years, 4% will be added.
- In loans of 4 years or more, 4.3% will be added.
These ICO loans do not have opening fees or study fees, but there is a fee charged for early repayment.
The repayment period can be from 1 to 10 years or 12, 15, or 20 years, with up to 2 years of deferment when the financing is for investment or for investment and liquidity. This is reduced 1 to 4 years with up to 1 year of deferment if the financing is only for liquidity.
How to apply for an ICO loan
To apply for an ICO loan, the potential borrower must go into a branch of one of the credit institutions associated with this financing system (which includes BBVA), and submit a proposal that must be primarily focused on the following two key aspects:
- Who is requesting the financing and for what purpose?
- Ability to repay, material solvency, and additional guarantees, which includes the possibility of a guarantor. As with any other request to borrow money, this is one of the most important aspects when it comes to obtaining financing.