In Germany the issuing banks of government emergency liquidity assistance loans had to assume at least 10% of the risk. The European Commission now cleared the path for a fully covered guarantee to SMEs.
Following critique, the European Commission decided over the weekend to allow a 100% government risk assumption for emergency liquidity assistance to SMEs not exceeding EUR 800.000. As of now the European Commission’s decision is set to expire on 20 December 2020. A possible extension will be decided well before that date.
To combat the economic blow of COVID-19, many states have rolled out plans for emergency liquidity assistance for companies hit hard by the crisis. While these programmes gained immediate traction, both banks and borrowers criticized that the German government could only assume up to 90% of the associated risk. Especially SMEs whose turnover was nearly eliminated through COVID-19 had trouble finding a bank willing to assume the remaining 10%. Germany’s federal government signalled willingness to issue a full guarantee, but was blocked by the European Commission quoting concerns over a distortion of competition across the continent and the diligent use of tax revenue.
The European Commission’s corrected decision to allow a full guarantee for loans up to EUR 800.000 delivers the anticipated relief. The German assistance programme, administered by state-owned development bank KfW and respective authorised house banks of borrowers, is prepared to issue an unlimited number of loans. For refinancing purposes, the KfW special programme 2020 may grant individual loans up to EUR 1 billion to German companies. Loans up to EUR 3 million (so including all possibly state-guaranteed loans) are provided following the sole risk assessment of the borrower’s house bank. Use of the KfW-programme can be combined with other COVID-19-related aid programmes (incl. the economic stabilisation fund and Germany’s start-up aid programme).
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