The Spanish Council of Ministers, under Article 29 of the Royal Decree Law 8/2020 of 17 March on urgent extraordinary measures to deal with the economic and social impact of COVID-19, approved on 24 March (Spanish Official Gazette 26 March) the conditions and requirements for access to the first tranche of guarantees, granted by the Ministry of Economic Affairs and Digital Transformation, up to an amount of EUR 20,000 million, in order to facilitate access to credit and liquidity for companies and the self-employed to deal with the economic and social impact of COVID-19.
Guarantee schemes for companies and the self-employed from the Ministry of Economic Affairs and Digital Transformation will be managed by Instituto de Crédito Oficial (ICO, the Spanish Official Credit Institute) through the financial institutions that grant financing to companies and the self-employed to alleviate the economic effects of COVID-19.
Companies and the self-employed will have access to these guarantees through their financial institutions, by formalising new financing operations or renewing existing ones.
These schemes are subject to the EU State aid rules.
In the first activated tranche of the guarantee schemes, amounting to EUR 20,000 million, the following ones have been created:
Up to EUR 10,000 million for renewals and new loans to the self-employed and small and medium-sized enterprises (SMEs).
Up to EUR 10,000 million for renewals and new loans granted to companies that do not qualify as SMEs.
What is the purpose of these schemes?
The guarantee measures aim at maintaining the employment and alleviating the economic effects of the COVID-19, through covering new loans and other forms of financing and renewals granted by financial institutions to companies and the self-employed to meet financing needs such as:
Salary payments.
Invoices.
Need for working capital.
Other liquidity needs, including those arising from maturities of financial or tax obligations.
Which financial institutions operate in these schemes?
Credit entities.
Financial credit establishments.
Electronic money institutions.
Payment institutions.
They must be registered and supervised by the Bank of Spain (or CNMV, the Spanish National Securities Market Commission, in the corresponding cases) and sign a framework agreement with ICO to participate in the guarantee schemes.
How do these schemes work and who should the self-employed and companies contact?
Self-employed individuals and companies interested in taking advantage of these support measures should contact any of the credit institutions, financial credit establishments, payment institutions or electronic money institutions that have signed the corresponding framework contracts with the ICO to participate in the guarantee schemes.
The financial institution will decide on the granting of the corresponding financing to the customer in accordance with its internal procedures and policies for granting and risks.
These financial institutions may use the guarantee schemes to support financing operations granted to the self-employed and companies.
What operations can be guaranteed?
New loans and other forms of financing and renewals of operations granted to the self-employed and companies in all sectors of activity that have their registered office in Spain and have been affected by the economic effects of the COVID-19, provided that:
The loans and operations have been formalised or renewed as of March 18, 2020.
Companies and self-employed persons: a) they are not in default when consulting the files of the Bank of Spain's Central Risk Information Service (CIRBE) on 31 December 2019; b) they are not subject to a bankruptcy procedure on 17 March 2020, either because they have submitted an application for a declaration of bankruptcy or because the circumstances referred to in Article 2.4 of Law 22/2003 of 9 July exist for the bankruptcy to be requested by their creditors; c) where the Temporary Framework for State aid of the European Union is applicable, not being in a crisis situation on 31.12.2019 in accordance with the criteria set out in Article 2 (18) of Commission Regulation No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty.
The guaranteed financing may not be applied to the cancellation or early repayment of pre-existing debts.
When and how long can guarantees be requested from these guarantee schemes?
Financial institutions can apply for guarantees for loans and operations signed with self-employed workers and companies that are formalised or renewed from 18 March 2020 until 30 September 2020.
The deadline may be extended, always in line with EU State aid rules, by agreement of the Council of Ministers.
What is the maximum amount of loans per customer that can be guaranteed by these schemes?
Depending on the regime applicable under European Union rules:
a) For loans or renewals of up to a maximum of EUR 1.5 million in one or more loan operations to self-employed persons and businesses, the specific provisions of Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid, where applicable, will apply.
In this case, the principal of the loan or other forms of financing under the applicable de minimis regime, up to a maximum of EUR 1.500.000.
b) For loans over EUR 1.5 million, or when the de minimis regime is not applicable, up to the maximum established in the European Commission's Temporary Framework for State aid, both for self-employed persons and companies that meet the condition of SME and for companies that do not meet the condition of SME.
The application of the Temporary Framework for State aid of the European Union in these cases establishes limits on the principal of the operation for those with a maturity date later than 31.12.2020. To simplify, these would be:
Double the wage bill in 2019, (including social contributions and the cost of the personnel of the subcontractors carried out in the headquarters).
25% of turnover in 2019.
Duly justified and certified liquidity needs for the next: SMEs 18 months; no SME 12 months.
Duly justified conditional superior exceptions.
What is the maximum percentage of coverage of the guarantee?
In the case of the self-employed and SMEs, the guarantee will cover 80% of the principal of new financing operations and renewals.
For the rest of the companies, which are not considered SMEs, the guarantee will cover 70% in the case of new loan operations and 60% for renewals.
The guarantee does not cover concepts other than the principal of the operation, such as payment of interest, commissions or other expenses inherent to the operations.
Companies will be considered SMEs if they meet this condition in accordance with Article 2 of Annex I of Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty.
How long is the guarantee valid?
The term of the guarantee issued will coincide with the term of the operation, up to a maximum of 5 years.
Can the financial institution pass on the cost of the guarantee to the self-employed person or company?
The financial entity has the obligation to guarantee that the costs of new operations and renewals that benefit from these guarantees will remain in line with the costs charged before the start of the COVID-19 crisis, taking into account the public guarantee of the guarantee and its cost of coverage.
Can existing financing schemes be cut back and benefit from the guarantees?
No. The financial entity also assumes the commitment to maintain, at least until 30 September 2020, the limits of the working capital schemes granted to all customers and, in particular, those customers whose loans are guaranteed.
Garrido Abogados antitrust team will remain at your disposal throughout the crisis. If you are faced with any of these issues, contact us or your regular lawyer at Garrido Abogados.
Pablo Figueroa (+34 91 210 67 86, Pablo.Figueroa@garrido.es)
Rubén Gil Puente (+34 91 319 60 62, Ruben.Gil@garrido.es)