The Chilean congress is poised to pass legislation that will create a central register of collateral used by SMEs to take out credit.
Small companies have to pay an upfront tax of 1.6% of the loan amount, known in Spanish as impuesto timbres y estampillas, every time they take out a new loan (including when they switch lender). Furthermore, every lender has a separate register of the collateral (perhaps land or a house) used against the loan.
Under the new scheme – expected to come into effect in mid-2007 – companies will be able to register the collateral centrally with a new government agency and will only have to pay the tax once, even if they change lender. The government also plans to reduce the tax to 1.2%.
Arturo Tagle, senior vice-president of planning and administration of Banco de Chile, says: “Small companies have been pushing for these changes for a while. It should make the banking system more competitive and dynamic.
“SMEs will also benefit because every time they wish to switch lender they have to pay lawyers a fee to study the title deeds so that the collateral can be registered with the new lender. In future, they will only have to do this once.”
Enrique Taladriz, head of research at Chilean fund manager Moneda, says: “The current situation is crazy. You have to pay this tax every time you wish to change lender. The change will also have a significant impact on mortgage holders that wish to switch lender. Under the current system, they too have to pay this tax.
“This is a move in the right direction but I think the government must go further and reduce this tax on credit totally.”
The government also plans to help SMEs by injecting a further $10 million into the existing Guarantee Fund for Small Companies.
Christian Larraín, director of consultants CL Group, says: “This fund has already proved to be an excellent instrument. Taking all the measures together, I think we will see an improvement in the access of SMEs to the banking system.”
The changes form part of a programme of reforms, called Competing Chile, designed to create a more dynamic private sector. Chile is also introducing new capital markets legislation to develop the venture capital industry (see Chilean reforms fail the entrepreneur test, Euromoney, October 2006).
Under these changes, the position of shareholders and owners in a new type of company (sociedad por acciones) will be more clearly separated, and shareholders will not have to pay a capital gains tax of up to 40% if they sell stock during the first three years.
