Covid-19: State guaranteed loans in France – Finance et Banque

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Article 6 of the amending finance law for 2020 of 23
March 2020 No. 2020-289 provides that the French State can
guarantee loans granted by credit institutions, financial companies
and crowdfunding lenders from March 16, 2020 to December 31
2020 to non-financial companies registered in France, up to
total guaranteed amount of 300 billion euros. This scheme
is the subject of an amended regulation of March 23, 2020
successively on April 17, 2020 and May 6, 2020. The Ministère de la
The economy has also released a document called “Frequently Asked Questions”
Questions – Loans guaranteed by the State “of April 23, 2020
(hereinafter the ” Faq“).

The purpose of such state aid is to “remedy a
disturbance of the economy of a Member State “in accordance with
Article 107 of the Treaty on the Functioning of the European Union
Union. The European Commission confirmed in decision SA 56709 of 21
March 2020 that the conditions for granting the guarantee by
the French state under this scheme were in accordance with the
framework adopted by the European Commission on March 19, 2020,
which was later modified on April 3, 2020.

A loan can thus be guaranteed by the State up to 90%
principal, interests and accessories if the company has less than
5,000 employees during its last financial year (or March 16, 2019 if
this is his first year) and has a turnover of less than
1.5 billion euros.

For companies with at least 5,000 employees or with a
turnover of more than 1.5 billion euros, this percentage is reduced
at 80% or even 70% unless derogation. Some
the following rules may also be subject to other exceptions
case of these big companies.

In this article, we will look at (1) the terms and conditions
state guaranteed loans (” SGL“) And
(2) the conditions of eligibility of companies to which these
loans can be made.

1. SGL terms and conditions

1.1 Maximum SGL amount

The loan amount can represent up to 25% of the company’s income.
turnover before tax in 2019 or last financial year. Yes
certified accounts are not available, it is possible to have
use a certificate from a chartered accountant.

There is a specific case concerning innovative companies or
those who meet at least one of the criteria set out in article D.
313-45-1, II of the French Code of entry and stay of
Foreigners and the right of asylum. In this case, the loan limit
represents up to twice the total payroll for 2019 (for France), excluding
employer contributions, if this amount is greater than 25% of the
2019 turnover excluding taxes.

For companies created on or after January 1, 2019, the maximum
The amount of the SGL corresponds to the estimated French payroll for
the first two years of operation.

1.2 Objective of SGL

State guaranteed loan funds do not have to be allocated
for a specific purpose.

However, it is not possible to refinance previous loans
State guaranteed loans since “the lending institution, or
crowdfunding intermediary [crowdfunder] acting on behalf
of lenders, must also demonstrate, in the event that the collateral
section 1 is called, only after the granting of
loan covered by this guarantee, the level of its assistance to
the borrower was higher than the level of its aid to
borrower on March 16, 2020, adjusted for reductions
two dates resulting from the amortization plan before the 16th
March 2020 or a decision of the borrower. ” That is why
State guaranteed loans are generally considered to be
“money” loans.

1.3 Duration and amortization profile

State guaranteed loan automatically includes one year
carryover, i.e. the borrower has nothing to repay for the first 12
month. At the end of this year, the borrower has the right to
decide the term of the loan amortization, up to a maximum of one
maximum five additional years (one, two, three, four or five years)
years). The borrower can also choose to repay part of the loan
end of the first year and amortize the rest.

1.4 Interest rate and margin

There is no legal provision, neither in law nor in decree,
which regulates the interest rate on loans, but the FAQ indicates that
“The banks, through the president of the French Bank
Russian Federation, have committed to [these loans] ‘at
Cost’. “

The FAQ also states that “in concrete terms, this means
that the rate for the borrower is the so-called resource rate of
the lending bank, currently close to 0% in the first year, more
the guarantee premium, applied to the principal of the loan and to the
whose scale is public and depends on the size of the company and
the maturity of the secured loan. As the cost of funds varies
from one bank to another, there may be small differences in the
on state guaranteed loans from one bank to another. “

So the cost of the loan is the result of adding the
interest rate of the bank concerned and fees for the State
warranty detailed below (1.5).

1.5 Guarantee fee due to the State

The guarantee fee due to the State is borne by the
borrower.

In the case of companies (i) with no more than 250 employees
and (ii) whose turnover does not exceed 50 million euros and / or
balance sheet total not exceeding 43 million euros, the rate of this
the costs are:

  • 0.25% the first year;
  • 0.5% for the first additional year, if applicable;
  • 0.5% for the second additional year, if applicable;
  • 1% in the third additional year, if applicable;
  • 1% in the fourth additional year, if applicable;
  • 1% in the fifth additional year, if applicable.

For companies with more than 250 employees or with both
turnover of more than 50 million euros and a balance sheet total of
more than 43 million euros, the rate is double the rate indicated
above.

Regarding the basis of these fees, the decree of March 23,
2020 specifies that they “are collected for the portion
guaranteed by Bpifrance Financement SA for loans
institution, in the name, on behalf and under the control of
State “. He specifies that 90% of the principal remaining due,
the interests and accessories of the loan guaranteed by the State are guaranteed
by the State if the company has fewer than 5,000 employees and less
1.5 billion euros in turnover.

With regard to their maturity, guarantee costs are levied
first payment when the guarantee is granted, and in a second
if applicable, when the borrower exercises the
clause allowing the loan to be amortized over an additional period
calculated in number of years. However, according to
FAQ “, as requested by the state
the borrower shouldn’t have to pay anything in the first year,
professionals or companies will not be required to pay these fees
the first 12 months after signing: the bank will bear the cost
of the warranty for the first 12 months. “

1.6 Collateral securing the part not guaranteed by
the state

If the loan is granted to a business of less than 5,000
employees and a turnover of less than 1.5 billion euros, 10%
a share which is not guaranteed by the State cannot be guaranteed by
another “guarantee or security”.

However, according to the FAQ, it is possible for a bank to
require credit life insurance and a state guaranteed loan
as part of an agreement following a conciliation procedure
benefit from the conciliation privilege.

2. Eligibility conditions for companies

2.1 Eligible sectors of activity

Eligible borrowers are all businesses, whether incorporated or
not including artisans, traders, farmers, liberal professions
and micro-entrepreneurs, as well as associations and foundations
having an economic activity registered in the national enterprise register,
except:

  • credit institutions and finance companies,
  • real estate civil societies
    civil real estate “) other than construction-sale
    real estate civil societies
    construction-sale real estate “), civil real estate
    companies mainly holding historic assets classified or recorded
    monuments within the meaning of the law of December 31, 1913 relating to the
    historical monuments and which receive income related to the
    the reception of the public (for these companies, the turnover at
    taken into account is limited to income related to
    public reception), and civil real estate companies entirely
    held by OPCIs (real estate investment trusts), SCPIs (investments
    real estate companies) or OPPCI (professional real estate
    investment trusts).

The FAQ specifies that “companies
of mixed economy (SEM) “,” companies
local authorities (EPL) “and” establishments
industrial and commercial public
(EPIC) “are eligible, as are payment institutions,
monetary institutions and asset management companies.

2.2 Exclusion of companies in difficulty

The regulations of March 23, 2020 as amended on May 6, 2020
excludes companies that, as of December 31, 2019, were the subject of a
a compulsory liquidation or a professional recovery procedure in the event of
natural persons or, in the case of natural or legal persons
entities, were going through the observation period of a safeguard measure
or recovery procedure. It should be noted that companies for
backup or recovery plan has been ordered by a court before the date
on which the loan was granted remain in principle eligible for
State guaranteed loan in accordance with regulations.

According to decision SA 56709 of March 21, 2020, the plan
cannot be granted to companies in difficulty or
were in trouble as of December 31, 2019 (but it may be
those who have become in difficulty following the emergence of the
COVID-19 Pandemic), which is confirmed by the FAQ.

Decision SA 56709 and the FAQ refer to the definition of a
company in difficulty in Article 2 (18) of the European regulation
651/2014 of June 17, 2014, which also covers:

  • any limited liability company within the meaning of the directive
    2013/34 / EU (such as a “company with
    limited liability (LLC) “, a
    ” joint stock company
    (SAS) “, a” public limited company (SA) “or a
    “Limited partnership with shares (SCA)”)
    who lost more than half of his share capital or any so-called
    unlimited liability company within the meaning of the directive
    2013/34 / EU (such as a “general partnership”
    (SNC) “or a” limited partnership
    (SCS) “) which has lost more than half of its capital as shown
    in the company accounts, disappeared due to the accumulation
    losses, except (in each case) if it is a small and medium
    company within the meaning of this European regulation (a
    company that employs less than 250 people and has a
    a turnover not exceeding 50 million euros or an annual balance sheet
    total not exceeding 43 million euros) which has existed since
    less than 3 years;
  • any business which “fulfills, in accordance with national law
    applicable to it, the conditions of submission to the
    insolvency proceedings at the request of its creditors “, namely
    any company in default of payment even if none
    bankruptcy or liquidation proceedings are
    start;
  • any business that “has received rescue assistance and has not yet
    repaid the loan or terminated the guarantee, or received
    restructuring aid and is still being restructured
    plan “, being clarified that this could include a business
    who is the subject of a safeguard or receivership plan if he has
    received “restructuring aid”;
  • any business, other than a small and medium-sized business
    within the meaning of this European regulation, if, for two years,
    years:
    1. the company’s debt / equity ratio is greater than
      7.5; and
    2. the company’s EBIDTA interest coverage ratio was
      less than 1.0.

Conclusion

The eligibility criteria for state guaranteed loans are quite
clear and the banks grant them fairly easily, with the refusal
rate below 5% according to the French Bank
Federation.

If your company wishes to benefit from this scheme, it is
it is advisable to contact a bank to request a loan. After a review of
the situation of your company and the defined eligibility criteria
above, the bank will grant a pre-approval. The formalities will then be
be carried out on the Bpifrance website.


Article originally published on May 7, 2020

The content of this article is intended to provide a general overview
guide on the subject. Ask for the advice of a specialist
on your specific circumstances.

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