[COVID-19] Exceptional measure to support the economy: the state-guaranteed loan
Updated information, as of the date of publication of this article
The State has announced the launch of a €300 billion State guarantee scheme for loans granted by banks to meet companies’ cash flow needs in the current context.
This exceptional measure is granted, without any further guarantee or security, from 16 March 2020 until 31 December 2020 inclusive, the main features of which are as follows.
– The companies concerned
Beneficiaries are legal or natural persons, associations or foundations with an economic activity within the meaning of Article 1 of Law No.°2014-856 of 31 July 2014 which are listed in the national directory of companies and their establishments mentioned in Article R123-220 of the Commercial Code.
Also concerned are companies, traders, craftsmen, farmers, liberal professions and micro-entrepreneurs.
On the other hand, the scheme does not apply to non-trading property companies, credit institutions or finance companies, or companies subject to collective proceedings: safeguard proceedings, receivership or compulsory liquidation (companies under an ad hoc mandate or conciliation, or under a continuation plan can benefit from the loan).
– Loan Features
The loan has a grace period of one year. Thus, no repayment will be required in the first year, but the company may, under certain conditions of size and maturity of the loan, choose to amortize the loan over a maximum of five years.
For companies created as of 1st January 2019 or for innovative beneficiary companies (thus targeted are start-ups without turnover) the loan can go up to a maximum amount of 2 years of payroll.
For companies created before 1st January 2019, the loan guaranteed by the State may not exceed a maximum ceiling set at 25% of the 2019 turnover or, where applicable, of the last year available.
The guarantee shall cover a percentage of the amount of principal, interest and incidental charges remaining due on the claim until the expiry of its term, unless it is called beforehand in the event of a credit event.
Depending on the size of the company, the loan will be eligible for a state guarantee ranging from 70% to 90%.
In a communication published in the Official Journal of the European Union on 31/07/2014, the European Commission had defined the “Guidelines on State aid for rescuing and restructuring firms other than financial institutions” (2014/C 249/01), which were the subject in France of a circular issued by the Secretariat General for European Affairs on 5 February 2019.
These texts lead to consider that an ETI is in difficulty when, since the two previous financial years, (i) the debt/equity ratio is greater than 7.5 and (ii) the interest coverage ratio, calculated on the basis of EBITDA, is less than 1.0.
Some banks use this argument to refuse loans.
However, on the one hand, the text of the European Commission applies to companies that employ more than 250 people or whose turnover exceeds 50 million euros or whose balance sheet total exceeds 43 million euros, and on the other hand, to our knowledge, there are no official details, which clearly explains the banks’ caution regarding the conditions of eligibility of the announced schemes.
– The steps
All enquiries should be made initially with your main bank.
In the event of a pre-approval obtained from the bank, the company will complete the procedures on a Bpi France website dedicated to this system (attestation-pge.bpifrance.fr) in order to obtain a State Guaranteed Loan application certificate with a unique number.
It should be noted that a specific approach is planned for large companies with more than 5,000 employees or a turnover in excess of 1.5 billion euros.
Of course, we remain available during this period for any questions and information you may need on this subject.
Update of 23 April 2020
Ordinance of 17 April 2020 amending the Ordinance of 23 March 2020 granting a State-backed guarantee to credit institutions and finance companies pursuant to Article 6 of the Finance Amendment Act 2020-289 of 23 March 2020