On 24 March (Official State Gazette of 26 March 2020), the Council of Ministers approved the details of the first tranche of ICO credit lines (for the amount of EUR 20 billion) for enterprises and the self-employed to offset the economic effects of Covid-19, within the framework of the urgent financial aid scheme foreseen in Royal Decree-Law 8/2020 (click here to see our note on the measures included in Royal Decree Law 8/2020).
Following approval by the Council of Ministers, on the very same day, 24 March, the European Commission stated that the abovementioned guarantee system complies with EU state aid rules.
The approved framework is based on a financial aid scheme in the form of public guarantees on private loans that financial institutions are to grant SMEs, the self-employed and large enterprises, based on the following:
- Beneficiaries: enterprises that are not in difficulty or were not in difficulty on 31 December 2019, but that faced difficulties thereafter due to the COVID-19 outbreak
- Purpose: new loans and other forms of financing and renewals granted by financial institutions to enterprises and the self-employed to meet financing needs resulting, among other things, from salary payments, invoices, working capital requirements or other liquidity needs, including those arising from the maturity of financial or tax obligations
- Amount of tranche: EUR 20 billion
- Eligible loan characteristics: Loans and other transactions granted to enterprises and self-employed persons with a business address in Spain that are affected by the economic effects of Covid-19, provided that:
- the loans and transactions have been concluded or renewed after 17 March 2020
- the borrowers have no payment arrears as of 31 December 2019 when the Bank of Spain's Risk Information Centre (CIRBE) files are checked
- the borrowers are not undergoing bankruptcy proceedings as of 17 March 2020, either as a result of having filed an application to declare bankruptcy or due to the circumstances referred to in Article 2.4 of Law 22/2003, of 9 July, on Bankruptcy, so that their creditors can apply for bankruptcy
Maximum amount per client:
Two possibilities are foreseen:
1. up to a maximum of EUR 1.5 million in one or more loan transactions for self-employed persons and enterprises
2. for loans above EUR 1.5 million, up to the maximum limit provided for in the European Commission's Temporary Framework for State Aid, ie:
a. for loans with a maturity after 31 December 2020, the principal loan amount may not exceed:
i. double the annual wage bill of the beneficiary for 2019, or for the last year available (for undertakings created on or after 1 January 2019, the estimated annual wage bill for the first two years of operations)
ii. 25% of total turnover of the beneficiary in 2019
iii. with appropriate justification and based on a self-certification by the beneficiary of its liquidity needs, to cover liquidity needs for 18 months from the time the financing is granted, for SMEs, and for 12 months from the time the financing is granted, for large enterprises
b. for loans with a maturity until 31 December 2020, the principal loan amount may exceed that indicated in paragraph (a) above if there is adequate justification
- Analysis of risk profile:
Two possibilities are foreseen:
1. transactions up to EUR 50 million: these will be guaranteed provided that the financial institution has approved them in accordance with its risk policies, notwithstanding further checks on eligibility requirements
2. transactions above EUR 50 million: these will be guaranteed provided that the state-owned Instituto de Crédito Oficial (ICO) has analysed compliance with the eligibility requirements, complementing the one carried out by the financial institution
- Guarantee percentages:
1. for SMEs, the state guarantee will cover a maximum of 80% of the transaction
2. for enterprises that do not meet the requirements to be SMEs, the guarantee will cover a maximum of 70% of new transactions and 60% of transactions being renewed
- Application deadline: until 30 September 2020 (unless extended by the Council of Ministers)
- Duration of guarantee: up to a maximum 5 years
As a result, in this first set of measures, the State has opted to set up a system of public guarantees for private loans granted by financial institutions to SMEs, the self-employed and large enterprises that, as part of the State's risk coverage, should facilitate financing of working capital and liquidity for enterprises and the self-employed at this exceptional time so that they can cover their needs. In any event, the mechanism is based on a bilateral or multilateral negotiation scheme between eligible companies and financial institutions that, according to their risk policies and commercial arrangements, must reach an agreement on the feasibility and exact conditions (interest rates, covenants, other obligations, etc.) of the financing that may be granted.
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