Guarantee of Loans (Small Businesses) Act


Published: 1998-08-14

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Guarantee of Loans (Small Businesses) Act
GUARANTEE OF LOANS (SMALL BUSINESSES) [CH.345 – 1



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[Original Service 2001] STATUTE LAW OF THE BAHAMAS

GUARANTEE OF LOANS (SMALL BUSINESSES)
CHAPTER 345

GUARANTEE OF LOANS (SMALL BUSINESSES)

ARRANGEMENT OF SECTIONS

SECTION

1. Short title.
2. Interpretation.
3. Power of Government to guarantee loans for small businesses.
4. Minister to be a corporation sole.
5. Approval of lender.
6. Application for guaranteed loan.
7. Functions of approved lender.
8. Conditions of a guaranteed loan.
9. Loan guarantee premium fee.
10. Loan Guarantee Fund.
11. Minister to give directions to approved lender.
12. Restriction on borrowing powers of the borrower if guarantee outstanding.
13. Limit on amount of guarantees to small businesses.
14. Audit and accounts.
15. Borrower to repay to Government sums paid under guarantee.
16. Misrepresentation.
17. Discharge of Government’s liability as a guarantor.
18. Guaranteed loan settlement.
19. Offences in respect of guarantee.
20. Regulations.




GUARANTEE OF LOANS (SMALL BUSINESSES) [CH.345 – 3



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[Original Service 2001] STATUTE LAW OF THE BAHAMAS

CHAPTER 345

GUARANTEE OF LOANS (SMALL BUSINESSES)
An Act to provide for the guarantee by the Government

of the Commonwealth of The Bahamas of loans by financial
institutions to small business and for purposes connected
thereto.

[Assent 24th July, 1998]
[Commencement 14th August, 1998]

1. This Act may be cited as the Guarantee of Loans
(Small Businesses) Act, 1998.

2. In this Act —
“agriculture” includes fisheries, forestry, horticulture,

and use of land for any purpose of husbandry
including the keeping or breeding of livestock,
poultry and bees and the growing of vegetables
or fruits;

“agricultural enterprise” means an enterprise in The
Bahamas in which is carried on the business of
agriculture;

“approved lender” means —
(a) The Bahamas Development Bank estab-

lished under section 3 of The Bahamas
Development Bank Act;

(b) a domestic bank licensed under the Banks
and Trust Companies Regulations Act;

(c) an insurance company registered under the
Insurance Act; or

(d) any other financial institution approved by
the Minister in accordance with the provi-
sions of section 5;

“borrower” has the meaning assigned to it in section
8(b);

“company” includes any body of persons whether
corporate or unincorporate;

“Fund” means the Loan Guarantee Fund established
under section 10;

25 of 1998

Short title.

Interpretation.

Ch. 357.

Ch. 316.

Ch. 347.

CH.345 – 4] GUARANTEE OF LOANS (SMALL BUSINESSES)





STATUTE LAW OF THE BAHAMAS [Original Service 2001]

“guaranteed loan” has the meaning assigned to it in
section 3(1);

“industrial enterprise” means an enterprise in The
Bahamas in which is carried on —
(a) the business of mining, manufacturing,

processing, transforming, assembling, in-
stalling, overhauling, reconditioning, alter-
ing, repairing, cleaning, packaging,
transporting or warehousing of goods;

(b) the operation of an air, sea or land public
transport service; or

(c) any service-oriented business;
“interest” means simple interest calculated on the

declining balance;
“Minister” means the Minister responsible for Loan

Guarantee Schemes;
“property” means real and personal property;
“small business” means an agricultural enterprise, an

industrial enterprise, a tourist industry enterprise
where the owner of such enterprise participates
or assists in the day to day management of the
enterprise, which has the following characteris-
tics —
(a) employs less than twenty-five persons; or
(b) the annual gross revenue does not exceed

one million dollars;
“security” or “collateral” means any personal guar-

antee or property pledged by a borrower to
protect the interest of the approved lender;

“tourist industry enterprise” means an enterprise in
The Bahamas in which is carried on the business
of —
(a) supplying hotel accommodation or other

tourist facilities; or
(b) supplying premises or equipment for any

business referred to in paragraph (a) of this
definition under a lease contract or other
arrangement whereby title to the premises
or equipment is retained by the supplier.

GUARANTEE OF LOANS (SMALL BUSINESSES) [CH.345 – 5



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[Original Service 2001] STATUTE LAW OF THE BAHAMAS

3. (1) The Government may in such manner and on
such terms and subject to such conditions as may be agreed
between it and an approved lender —

(a) guarantee the discharge by a borrower of its
obligations under any agreement (in this Act
referred to as a “guaranteed loan”) which may
be entered into by the borrower with an
approved lender in respect of any borrowing or
under any bond, promissory note or other
instrument issued pursuant to any such agree-
ment; and

(b) assume such other obligation as may be agreed
between the Minister and an approved lender in
relation to or pursuant to any such agreement,
bond, promissory note or other instrument.

(2) A guarantee or undertaking given under this
section shall be given in writing in the name of the
Government of the Commonwealth of The Bahamas and
any guarantee or undertaking or any endorsement or any
bond, promissory note or other instrument of guarantee or
undertaking given under this section may be signed on
behalf of the Government of the Commonwealth of The
Bahamas by the Minister or by any person authorised in
writing by the Minister on that behalf.

(3) Section 17 of the Financial Administration and
Audit Act shall not apply to any guarantee made by the
Minister under subsection (1).

4. The Minister shall, as respects the functions
assign to him by or under this Act, be a corporation sole,
with power to acquire, hold, lease and dispose of property,
to enter into contracts, to sue and be sued and to do all
things necessary for the purposes of this Act.

5. (1) The Minister may, subject to such conditions
as he sees fit, approve any financial institution as a lender for
the purposes of this Act.

(2) The Minister may at any time terminate the
approval given to a lender under this section by not less
than six months’ notice in writing.

(3) No notice of termination under subsection (2)
shall affect the rights or obligations of any person under
any guarantee which is made or entered into before the
date on which such termination takes effect.

Power of
Government to
guarantee loans
for small
businesses.

Ch. 359.

Minister to be a
corporation sole.

Approval of
lender.

CH.345 – 6] GUARANTEE OF LOANS (SMALL BUSINESSES)





STATUTE LAW OF THE BAHAMAS [Original Service 2001]

6. (1) An approved lender desirous of obtaining a
guarantee for a loan under this Act shall apply to the
Minister in the prescribed form.

(2) Before an approved lender makes an application
under subsection (1), it shall evaluate the loan proposal of
the borrower and indicate to the Minister, the terms and
conditions of its participation in granting the borrower a
loan.

7. (1) An approved lender shall —
(a) obtain proof of the eligibility of the borrower for

the grant of a guaranteed loan;
(b) at all times exercise due diligence to ensure that

the proceeds of the guaranteed loan are being
applied to the purposes for which the loan was
made;

(c) obtain the approval of the Minister before
modifying any guaranteed loan under this Act;
and

(d) scrutinize and check the application for the loan
and the statements contained therein with the
care required by the approved lender in the
conduct of its ordinary business.

(2) An approved lender shall submit quarterly
declarations to the Minister commencing from the date on
which such loan would have been approved, in such form
as may be prescribed and otherwise required under this
Act, listing all guaranteed loans administered by it and
which are in arrears at the end of that quarter and advising
the Minister of the steps taken to recover such arrears.

8. A loan may be guaranteed under this Act if all
the following conditions are satisfied, that is to say —

(a) the loan is made by an approved lender;
(b) the loan is made to an individual or company (in

this Act referred to as the “borrower”) who
provides evidence satisfactory to the Minister
that such individual or persons forming the
company are —

(i) not less than eighteen years of age;
(ii) not under any liability to an approved

lender under any other loan previously
made by an approved lender and guaran-
teed under section 3;

Application for
guaranteed loan.

Functions of
approved lender.

Conditions of a
guaranteed loan.

GUARANTEE OF LOANS (SMALL BUSINESSES) [CH.345 – 7



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[Original Service 2001] STATUTE LAW OF THE BAHAMAS

(c) the purpose of such loan is to establish a small
business or to undertake any project relating to
such business;

(d) the loan does not exceed two hundred and fifty
thousand dollars;

(e) the loan is made on terms that all moneys
borrowed under the loan shall be repaid within a
period of ten years following the date on which
the first advance is made under the loan or such
other date as may be determined by the Minister;

(f) the loan is made —
(i) to an individual who provides evidence

satisfactory to the Minister that there is a
valid policy of insurance on his life with
an insurance company registered under the
Insurance Act for such an amount as is
sufficient to cover the full amount of the
loan or to an individual who takes out a
mortgage redemption policy with an insur-
ance company registered under the Insur-
ance Act and undertakes to maintain the
policy by regular payment of premiums
and assigns the benefits of the policy to
the approved lender and deposits it with
the approved lender;

(ii) to a company which provides evidence
satisfactory to the Minister that there is a
valid policy of insurance on the lives of the
principal owners and manager of the
company, with an insurance company
registered under the Insurance Act, the
aggregate of which is sufficient to cover the
full amount of the loan or to a company
that has taken out a mortgage redemption
policy with an insurance company regis-
tered under the Insurance Act and under-
takes to maintain the policy by regular
payment of premiums and assigns the
benefit of the policy to the approved lender
and deposits it with the approved lender;
and

(g) the aggregate amount guaranteed shall not
exceed eighty per centum of the loan amount;

Ch. 347.

Ch. 347.

CH.345 – 8] GUARANTEE OF LOANS (SMALL BUSINESSES)





STATUTE LAW OF THE BAHAMAS [Original Service 2001]

(h) the loan is secured by a first legal mortgage on
property or by a debenture in favour of the
approved lender and, where there is no property
available, by any other collateral or security
which may be approved by the Minister; and

(i) any premises which is security for the loan is
insured against all insurable risks as defined in
the Second Schedule to the Guarantee of Loans
(Small Businesses) Regulations for the full
amount of the value of the property at the date of
the making of the loan, or for such greater or
lesser amount, as the Minister may, from time to
time, having regard to any fluctuations in the
cost of building, require by notice in writing to
the approved lender.

9. (1) The approved lender shall pay a loan guarantee
premium fee to the Minister in respect of each loan
guaranteed under this Act.

(2) The loan guarantee premium fee mentioned in
subsection (1) shall be in a sum equal to two per centum of
the amount guaranteed.

10. (1) For the purposes of section 3, the Minister
shall establish a fund to be known as the Loan Guarantee
Fund (in this Act referred to as “the Fund”) out of which
all payments required to be made by the Government
pursuant to section 3 shall be made and into which all loan
guarantee premium fees received under this Act shall be
paid.

(2) The fulfilment of all the obligations of the
Government under section 3 shall be guaranteed out of the
Consolidated Fund and accordingly, there shall be paid into
the Fund from time to time out of the Consolidated Fund
by warrant under the hand of the Minister of Finance such
sums as may be necessary to increase the Fund to an
amount which will enable the Minister to discharge these
obligations.

(3) Whenever any sum is paid out of the Consolidated
Fund under subsection (2) of this section, the Minister shall
prepare a statement and lay it before the House of
Assembly.

Loan guarantee
premium fee.

Loan Guarantee
Fund.

GUARANTEE OF LOANS (SMALL BUSINESSES) [CH.345 – 9



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[Original Service 2001] STATUTE LAW OF THE BAHAMAS

(4) Without prejudice to the provisions of
subsection (2) of this section, where the Fund at the end of
any financial year exceeds ten per cent of the total amount
of guaranteed loans in force, the Minister shall apply the
surplus towards repaying to the Consolidated Fund all
sums paid therefrom into the Fund in accordance with
subsection (2) of this section.

(5) The Minister may from time to time invest any
of the liquid assets of the Fund in securities which are
obligations of the Government, as well as securities
approved by the Governor-General.

(6) No payment shall be made out of the Fund except
such payments as are authorized to be made by this Act.

11. The Minister may give directions in writing to
the approved lender as may from time to time be necessary
or desirable for the purpose of administering the Fund and
the approved lender shall comply with the directions.

12. So long as the Government shall continue to be
liable is under any guarantee or other undertaking given in
exercise of the powers under section 3(1) in respect of any
borrowing, the borrower shall not, without the consent of
the approved lender and the Minister, exercise any other
power to borrow additional funds for the project except the
power to borrow by way of overdraft for a period not
exceeding twelve months.

13. The aggregate amount of all borrowings by small
businesses that are guaranteed by the Government under
this Act shall not exceed ten million dollars or such greater
sum as may from time to time be specified by resolution of
the House of Assembly.

14. (1) The Minister shall cause to be kept proper
accounts and other records relating to the Fund and shall
prepare in respect of each financial year a statement of the
accounts of the Fund in compliance with generally
accepted accounting principles.

(2) The accounts of the Fund shall be audited
annually under such arrangements and in such manner
as may be approved by the Minister.

(3) The Minister shall cause a copy of the annual
statement of accounts and the auditor’s report thereon to be
laid on the table of both Houses of Parliament not later
than six months after the end of each financial year.

Minister to give
directions to
approved lender.

Restriction on
borrowing
powers of the
borrower if
guarantee
outstanding.

Limit on amount
of guarantees to
small businesses.

Audit and
accounts.

CH.345 – 10] GUARANTEE OF LOANS (SMALL BUSINESSES)





STATUTE LAW OF THE BAHAMAS [Original Service 2001]

(4) Copies of the annual statements of accounts and
the auditor’s report on those statements of accounts of the
Fund shall be published in such manner as the Minister
may direct and shall be made available to the public at a
reasonable price.

15. If any sum is paid out of the Consolidated Fund
or other Fund referred to in section 10(1) in respect of any
liability incurred by the Government under a guarantee or
other undertaking given in exercise of the powers conferred
by section 3(1), the borrower shall repay such sum
(together with interest whereon at such rate as the Minister
may prescribe) to the Consolidated Fund or to the Fund
referred to in section 10(1), as the case may be, in such
manner and at such time as the Minister may direct.

16. Where an approved lender discovers that any
statement in an application for a loan is false in any
material respect or that a borrower has used or is using the
proceeds of a loan otherwise than for a purpose specified
in the application of a loan, the approved lender may take
any action it considers proper in the circumstances and
shall immediately make a full report in respect of the
matter to the Minister.

17. Without prejudice to any other rights or remedies
of the Government as a guarantor, the Government shall
be discharged from all liability in respect of a guaranteed
loan under this Act —

(a) if the approved lender fails to disclose any fact
known to the approved lender which may
reasonably have affected the decision of the
Minister in granting the guaranteed loan;

(b) if the approved lender fails to disclose to the
Minister any defect in the title of the borrower to
collateral or security for the loan; being a defect
which the approved lender has discovered or
ought with reasonable diligence to have discov-
ered, and if the defect is one which might
reasonably have affected the decision of the
Minister in granting the guaranteed loan;

(c) if the approved lender assigns or conveys,
otherwise than with the approval of the Minister
to another approved lender, any of the rights of
the approved lender under the loan or any other
charge or lien by which the loan is secured;

Borrower to
repay to
Government
sums paid under
guarantee.

Misrepre-
sentation.

Discharge of
Government’s
liability as a
guarantor.

GUARANTEE OF LOANS (SMALL BUSINESSES) [CH.345 – 11



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[Original Service 2001] STATUTE LAW OF THE BAHAMAS

(d) if the approved lender varies or waives any of
the obligations of the borrower under the loan
without the approval of the Minister;

(e) if the approved lender, otherwise than in
accordance with the terms of the loan, releases
any security or collateral taken as a security for
the loan without the approval of the Minister; or

(f) if the approved lender has failed to comply with
any provision of section 7.

18. (1) Subject to the provisions of this section, an
approved lender, who is the creditor in respect of a
guaranteed loan which is secured by a mortgage on
premises or chattels may, where default has occurred
under the mortgage, realise its security by selling those
premises or chattels in accordance with the provisions of
this section.

(2) A sale of premises or chattels in accordance with
the provisions of this subsection shall, whether or not in
exercise of the powers of sale conferred on a mortgagee by
any written law, be effected by public auction or otherwise,
and such sale shall only take place at a price which shall
not be less than a sum equal to eighty per cent of the
following sums (hereinafter referred to as the “settlement
value”) —

(a) the balance of the principal sum of the loan
owing on the date when the security is realised;

(b) the interest owing on the said date under the
loan in respect of the period of twelve months
immediately preceding the said date;

(c) such reasonable costs of realising the security
and of selling the premises as are incurred by the
approved lender as the Minister may approve or
as the Minister may have agreed as a term of the
guaranteed loan.

(3) If a sale shall not take place in accordance with
subsection (2), the approved lender shall forthwith notify
the Minister and the Minister shall either —

(a) authorise the approved lender to sell the
property at the best price reasonably obtainable
(whether by public auction or otherwise) and if
upon sale such price is less than the settlement


Guaranteed loan
settlement.

CH.345 – 12] GUARANTEE OF LOANS (SMALL BUSINESSES)





STATUTE LAW OF THE BAHAMAS [Original Service 2001]

value of the loan, the Minister shall pay to the
approved lender a sum equal to the settlement
value after deducting there-from the price at
which the premises or chattels were sold; or

(b) require the approved lender to transfer to him or
his nominee, all rights to and in respect of the
guaranteed loan and all collateral or other
securities therefor on payment of the settlement
value of the property by the Minister to the
approved lender calculated in accordance with
subsection (2); or

(c) require the approved lender to sell the property
to the Minister or his nominee at the settlement
value and to convey title to the Minister or his
nominee free and discharged from all liability to
the approved lender or the borrower.

(4) If the Minister shall authorise the sale of the
property under paragraph (a) of subsection (3) and such
sale shall not take place in accordance with that
paragraph, the Minister shall give further directions in
accordance with either paragraph (b) or (c) of subsection
(3).

(5) The payment by the Minister to an approved
lender in respect of a guaranteed loan of the sum provided
for in subsection (3)(a) shall discharge the Government
from all liability to the approved lender in respect of the
guaranteed loan.

(6) In every sale of mortgaged premises or chattels in
accordance with the provisions of subsection (2) —

(a) such premises or chattels shall be sold for the
same estate or interest as the mortgagor would
have therein but for the mortgage, and subject
only to such conditions respecting title or
evidence of title, or other matters, as it is
necessary or proper to impose on the sale of
such premises or chattels as the Minister may
permit to be imposed; and

(b) in the case of sale by public auction, notice of
intention to sell the mortgaged premises or
chattels by public auction and of the time, date
and place of such auction, shall be published in
two issues of any newspaper published and
circulating in The Bahamas at intervals of not
less than two days.

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[Original Service 2001] STATUTE LAW OF THE BAHAMAS

(7) Where, in addition to being secured by a
mortgage on any premises or any chattel, a guaranteed loan
is secured by a mortgage or charge on other premises or
chattels, subsection (1), shall have effect as if references to
a security included references to all securities for the
guaranteed loan, and as if references to premises and
chattels included references to all premises and chattels on
which the loan is secured.

(8) For the purposes of this section default occurs
where ninety days has elapsed after the amount of the loan
becomes due and payable.

19. (1) Any person who —
(a) wilfully applies any proceeds of a guaranteed

loan to any purpose other than the purpose for
which the loan was made; or

(b) having obtained a guaranteed loan, wilfully
destroys or misappropriates any security given
in relation to such guaranteed loan,

shall be guilty of an offence and shall be liable on
summary conviction to a fine of five thousand dollars, or
to imprisonment for a term of twelve months or to both
such fine and imprisonment.

(2) If any person, in giving any information, making
any application or claim for the purposes of this Act,
makes any statement which he knows to be false in a
material particular, or recklessly makes any statement
which is false in a material particular, that person shall be
liable on summary conviction to imprisonment for a term
of six months or to a fine of two thousand five hundred
dollars or to both such fine and imprisonment.

(3) Where an offence under this section has been
committed by a body corporate, every person who at the
time of the commission of the offence was a director,
general manager, secretary of the company or other similar
officer of the body corporate, or was purporting to act in
any such capacity, shall be deemed to be guilty of that
offence, unless he proves that the offence was committed
without his consent or connivance and that he exercised all
such diligence to prevent the commission of the offence as
he ought to have exercised having regard to the nature of
his functions in that capacity and to all the circumstances.

Offences in
respect of
guarantee.

CH.345 – 14] GUARANTEE OF LOANS (SMALL BUSINESSES)





STATUTE LAW OF THE BAHAMAS [Original Service 2001]

20. The Minister may make regulations for the
purpose of giving effect to this Act, and in particular for
prescribing anything by this Act required to be prescribed.



Regulations.

Related Laws