100,000 million euros for PYMEs. This is how ICO guarantees work

April 9, 2020

Article by Jose Luis Huertas. Lawyer – Economist. Mercantile Department of Ley 57 Lawyers and Law Firm Jiménez y Asociados.


The situation of companies requires correct planning in order to overcome the crisis caused by the Coronavirus. This is one of the tools.
(Source: ICO)

It is very likely that at this time you have or foresee liquidity problems to pay workers, payroll, rental of premises (*) and even taxes. Both for companies and for the self-employed, the Government has approved a line of guarantees that are intended -with effect and will see if with effective results- facilitators of working capital with which to finance short-term payments essential for the survival of the activity. Let’s see how.

Royal Decree-Law 8/2020, of March 17, provides for a line of Endorsements endowed with up to 100,000 million euros whose first tranche of 20,000 million euros has already been activated.

Article 29 of Royal Decree-Law 8/2020, of March 17, on extraordinary urgent measures, refers to the conditions and requirements to access the first tranche of guarantees, granted by the Ministry of Economic Affairs and Digital Transformation, up to a amount of 20,000 million euros, to facilitate access to credit and liquidity for companies and freelancers to face the economic and social impact of COVID-19.

This Line of State Guarantees for companies and the self-employed will be managed by the ICO through the financial entities that grant financing to companies and the self-employed to alleviate the economic effects of COVID-19, guaranteeing liquidity and covering the needs of the self-employed worker, PYMEs and companies, in order to maintain productive activity and employment.

Companies and freelancers must process these guarantees through their financial entities, referring to new financing operations or renewal of existing ones.

In the first activated section of the Line of Guarantees, for an amount of 20,000 million euros, two sub-sections are created:

Up to 10 billion euros for renewals and new loans granted to self-employed workers and PYMEs.
Up to 10 billion euros for renewals and new loans granted to companies that do not meet the status of PYMEs.

The Line is subject to the State aid regulations of the European Union.

Characteristics and way of processing

Is it the State that lends the money?

NO. The State agrees with the financial entities to be guarantor in a percentage of the operation that the entity approves. The guarantee assumes that the State would take over the loan in the event of future non-payment up to the percentage covered by the guarantee.

What is the purpose of this Line of Guarantees?

The first objective is to facilitate the maintenance of employment and mitigate the economic effects of COVID-19, and to cover new loans and other forms of financing and renewals granted by financial entities to companies and the self-employed to meet financing needs such as:

Payments of wages
Vendor invoices pending settlement
Rentals of premises, offices and facilities
Supply costs
Need for currency
Other liquidity needs, including those derived from maturities of financial or tax obligations

Unification and restructuring of loans, as well as the cancellation or early amortization of pre-existing debts, cannot be financed with the Guarantee Line.

What financial entities operate in this line?

Credit institutions
Financial credit institutions
Electronic money institutions
Payment entities

They must be registered and supervised by the Bank of Spain and have signed a framework contract with ICO to participate in the Guarantee Line.

How does this Line work and where should freelancers and companies go?

The self-employed and companies interested in availing themselves of this line should contact any of the credit institutions, financial credit institutions, payment institutions or electronic money institutions that sign the corresponding framework contracts with the Official Credit Institute to participate in the Line of Guarantees.

The financial institution will decide on the granting of the corresponding financing to the client in accordance with its internal procedures and grant and risk policies.

Linked insurance?

Financial institutions may not condition the approval of loans to the contracting by the client of any other service or product.

What operations can be guaranteed?

New loans and other forms of financing and renewals of operations granted to self-employed workers and companies from all sectors of activity that have their registered office in Spain and that have been affected by the economic effects of COVID-19 provided that:

The loans and operations have been formalized or renewed as of March 18, 2020.

Companies and freelancers:
They do not appear in a unpaid situation in the consultation of the files of the Bank of Spain’s Risk Information Center (CIRBE) as of December 31, 2019.
They are not subject to insolvency proceedings as of March 17, 2020, either not they have filed for bankruptcy, or due of the circumstances referred to in Article 2.4 of Law 22/2003, of July 9, for the bankruptcy to be requested by your creditors.
When the Temporary Aid Framework of the European Union is applicable, do not find yourself in a crisis situation.
The guaranteed financing cannot be applied to the cancellation or early amortization of pre-existing debts.

From when and until when can guarantees be requested from the Guarantee Line?

Financial institutions can request the guarantee for loans and operations subscribed with self-employed and companies formalized or renewed from March 18, 2020 until September 30, 2020.

The term is expandable if the government so decides.

What is the maximum amount of loans per customer that this Line can guarantee?

Depending on the applicable regime in accordance with the regulations of the European Union:

For loans or renewals of up to a maximum of 1.5 million euros in one or more loan operations to self-employed workers and companies, the specific provisions of Commission Regulation (EU) No. 1407/2013 of December 18 will apply. of 2013, regarding the application of articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid, when applicable, in this case the principal of the loan operation or other financing modalities according to the Applicable de minimis, up to a maximum of € 1,500,000 for most sectors, or the corresponding limit for some specific sectors (agriculture, fishing and road transport of goods) with specific Community de minimis regulations.
For loans above 1.5 million euros, or for lower amounts when the de minimis regime is not applicable, up to the maximum established in the Temporary Framework of State Aid of the European Commission for both self-employed and companies that meet the condition PYMEs and companies that do not meet the status of PYMEs.The application of the Temporary Aid Framework of the European Union in these cases, establishes limits on the principal of the operation for those with maturity after 31.12.2020. Simplifying they would be:
Double the wage bill in 2019, (including social security contributions and the cost of the personnel of the subcontractors performed at the headquarters).
25% of 2019 turnover
Properly justified and certified liquidity needs for the following:
PYME 18 months
No PYME 12 months
Properly justified conditional superior exceptions.

What is the maximum coverage percentage of the guarantee?

In the case of freelancers and PYMEs, the guarantee will guarantee 80% of the principal of new financing operations and 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.

PYMEs will be considered as those companies that meet this condition in accordance with Article 2 of Annex I of Commission Regulation (EU) No. 651/2014 of June 17, 2014, which declares certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty.

What is the term of the guarantee?

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 transfer the cost of the guarantee to the self-employed person or company?

They shoould not.

In addition, financial institutions «must transfer to their clients the benefit derived from the public guarantee in the form, among other options, of lower interest or longer term, or more financing, or period of lack of principal, etc.»

As indicated, the entity may not condition the approval of these loans to the contracting by the client of any other service or product.

Can you cut existing financing lines and benefit from guarantees?

No. The financial institution also undertakes to maintain, at least until September 30, 2020, the limits of the working capital lines granted to all clients and, in particular, to those clients whose loans are guaranteed.

How are the guarantees distributed among financial institutions?

The amount will be distributed among each financial institution according to their market share at the end of 2019, on the one hand, in relation to credit to self-employed workers and SMEs and, on the other hand, to large companies, according to the information communicated by the Bank of Spain . Financial institutions that at the end of 2019 did not have a credit balance registered with the Bank of Spain with an aggregate fee of 1% will also have access to this line.

As of April 30, the amounts of guarantees assigned and not used by the entities will be distributed among the rest of the operators that have exhausted their lines, proportionally to the amount of the guarantee that they would have used up to that date.
Should I request this operation in any case?

NO. Proper treasury planning involves borrowing if a possible liquidity stress situation so requires. On borrowing it may mean the impossibility of future repayment and therefore a risk situation that can be negatively valued in the event of future bankruptcy.

In fact, companies with defaults already registered WILL NOT BE ABLE TO ACCESS THIS LINE OF GUARANTEES.

The commercial departments of Law 57 Lawyers and Law Firm Jiménez y Asociados recall that there are legal tools to act in situations of current or imminent insolvency, which require its implementation as prevention of possible personal liability of the administrator of the company.

(*) On this point we will analyze the question in a future article. Follow us on our website and social networks.

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