Municipal guarantees

The rules on providing security and other financial guarantees are set out in the Local Government Act, Section 51, and in the Regulations on Local Authority Guarantees. It is important to note that it is not possible for municipalities to provide security or any other financial guarantee in respect of business activities carried out by a party other than the municipality itself. Guarantees for over NOK 500,000 must be approved by the county governor.

Guarantees

We only offers loans to companies and other types of organisation if they have a guarantee (in Norwegian a "selvskyldnerkausjon") from a municipality or county authority. The guarantee must be for the entire principal amount plus an additional 10 % to cover any accrued interest and costs. The guarantee must be valid for the entire term of the loan plus an additional two years. Under Norwegian law, a "selvskyldnerkausjon" is a form of guarantee that enables the creditor to claim directly from the guarantor in the event of default by the borrower without having to first seek payment from the borrower.

Requirements for guarantees

We requires a copy of the minutes that show that an unconditional resolution was passed by the municipality or county authority to provide a guarantee (i.e. a resolution with no restrictions) in accordance with the following points:

1. Y municipality guarantees by means of a guarantee ("selvskyldnerkausjon") a loan of NOK X taken out by (debtor) for (project name).
2. The guarantee is for the entire principal amount up to a maximum of NOK X plus an additional 10% of the principal amount outstanding at any time to cover any accrued interest and costs. The municipality’s maximum guarantee liability cannot exceed (NOK X + 10%)
3. The guarantee liability decreases in accordance with the repayment of the loan and ceases after Z years plus an additional two years, cf. the Regulations on Local Authority Guarantees, Section 3.

Explanation

NOK X is equal to the principal amount of the loan.

The additional 10% is calculated on the principal amount outstanding at the time and is the percentage KBN requires.

The municipality’s maximum guarantee liability is equal to the principal amount of the loan plus an additional 10%.

For example: If a municipality guarantees a loan of NOK 5 million plus an additional 10% for accrued interest and costs, the municipality’s maximum guarantee liability will be NOK 5.5 million.

Z years is the loan’s term (the maximum lifetime of the loan that is guaranteed).
The two additional years represent the maximum permitted.

Furthermore, KBN requires a copy of the county governor’s valid and unconditional approval of the resolution to provide security, which must satisfy requirements contained in, and be in accordance with, the Local Government Act, Section 51.

Any rights and liabilities between the guarantor and the borrower must be regulated by a separate recourse agreement.