The Law of 27 March 2020 authorised the King to set up a state guarantee scheme for certain bank loans in the framework of the fight against the coronavirus. The Royal Decree elaborates the conditions of this state guarantee.
The main objective of this guarantee scheme is to maintain and support the provision of financial means to the real economy and the non-profit sector.
The spread of the coronavirus and the measures taken to combat it are causing liquidity problems for many structurally sound and solvent companies. On the other hand, credit institutions in turn face high uncertainty and the risk of higher losses when they grant new loans. This could lead to a deadlock situation.
In short, a sharp decline in lending to the real economy and the non-profit sector must be avoided at all costs.
1. Framework of the state guarantee
The approved guarantee scheme is part of a diptych contained in an agreement between the government, the National Bank of Belgium and the banking sector.
The first pillar includes a commitment by the banking sector to grant affected businesses and individuals a six-month moratorium on payments. This relates to existing loans.
The second pillar is the state guarantee scheme elaborated in this Royal Decree. This pillar relates to new short-term loans.
From a policy point of view, the two pillars are linked to each other.
2. What types of financing are involved?
The State guarantee scheme applies to short-term facilities (of up to 12 months, or that can be terminated by both parties within 12 months) granted by credit institutions to businesses and self-employed individuals between 1 April 2020 and 30 September 2020.
This state guarantee only covers additional financing, i.e. new bank loans.
Refinancing and renewal of loans are out of the scope of the guarantee, though it is possible to refinance qualifying loans under the scheme.
The State does not guarantee individual loans, but covers loan portfolios of individual credit institutions. The loss and loss contribution is calculated on a portfolio basis.
It is intended that the benefit of the State guarantee should be passed on in its entirety to the borrower. It is therefore stipulated that the credit institution may charge the borrower an interest rate (on an annual basis) of up to 1.25%. Only the fee paid to the State may be charged to the borrower (25 basis points for loans to SMEs and 50 basis points for loans to other businesses).
However, credit institutions may still charge the usual costs (such as administrative costs or reservation fees).
3. To which borrowers does the State guarantee apply?
All non-financial companies, including self-employed individuals and non-profit organisations, can take advantage of this scheme, unless they already had payment difficulties before the corona crisis or were already considered as in financial difficulty on 31 December 2019.
All non-profit organisations with legal personality can also benefit from this scheme, if they are not excluded because of the reasons indicated above. Likewise hospitals, regardless of their legal form.
Borrowers are excluded when they are in difficulty, in particular if they:
- have incurred delays in their payments with current loans or with taxes or social security contributions as at 1 February 2020; or if they incurred a delay of more than 30 days with their current loans or with the taxes or social security contributions at 29 February 2020;
- are involved in an active credit restructuring with one or more credit institutions on 31 January 2020;
- on the basis of the information available, are to be regarded as an undertaking in difficulty.
4. For which loans?
The state guaranteed loan may only be used by the borrower to finance its activities located in Belgium.
However, under specific conditions, a maximum of 10% of the state guaranteed loan may be used to finance foreign activities, if:
- they are conducted by the borrower himself or by an entity under the exclusive or joint control of the borrower;
- the continuation of the activities is crucial for the Belgian activities;
- they are, by themselves, viable; and
- there is no other possibility to finance these foreign activities on a sustainable basis and at normal market rates.
5. Conclusion
We hope that these measures will benefit the self-employed businessmen and the businesses, so that they will be able to obtain affordable financing and to overcome this exceptional situation and to ensure their continuity.
But, even if the banks have granted payment facilities, or should banks or creditors refuse to grant loans or payment facilities, companies can call on the legal instruments of the insolvency legislation to safeguard their business.
We refer to our article "Corona crisis and insolvency".
