European Central Bank (ECB)
The ECB has launched a €750 billion Pandemic Emergency Purchase Programme (PEPP) to support the liquidity and financial positions of businesses in all sectors of the Eurozone. The PEPP is an expansion of the ECB’s various current asset purchase programmes through which the ECB buys corporate bonds of eligible issuers on the secondary market.
These asset purchase programmes comprise:
- The secondary markets public sector asset purchase programme (Decision (EU) 2020/188)
- The third covered bond purchase programme (Decision (EU) 2020/187)
- The asset-backed securities purchase programme (Decision (EU) 2015/5)
- The corporate sector purchase programme (Decision (EU) 2016/948)
The programmes are scheduled to operate until 31 December 2020. One key restriction in the eligibility criteria for the PEPP scheme is that issuers must be incorporated in a Member State whose currency is the euro (therefore excluding UK-based issuers).
For more information, please view the PEPP criteria.
The French government has launched the State Guarantee Scheme, whereby loans provided by financial institutions to eligible French businesses between 16 March 2020 and 31 December 2020 will be guaranteed by the State. The maximum amount that may be provided is dependent on the type of borrower, but the amount of the loan may reach up to three months of the company's 2019 turnover, or two years of business payroll for innovative companies or companies created since January 2019 (based on estimated business payrolls for two years). No repayment will be required in the first year, and the company may choose to amortize the loan over a maximum period of five years.
In addition, the French government has set up a €4 billion emergency plan to support start-ups. Companies may also benefit from direct lending from the state-owned BPI bank, including unsecured loans for SMEs and medium-sized companies.
For further details on the French State Guarantee Scheme, including details relating to eligibility criteria and restrictions, please view the French State Guarantee Scheme.
The federal government has set up three different schemes. The parameters of the loans differ per scheme, including the eligibility criteria, restrictions, amounts offered and loan restrictions.
In summary, the three main schemes are:
- The COVID-19 immediate aid programme of the federal government:
This scheme provides immediate aid in the form of non-repayable grants to self-employed individuals (including freelancers) and small businesses with up to 10 employees.
Importantly, the loan is restricted to businesses facing financial difficulties due to the COVID-19 pandemic; therefore, the prospective borrower cannot have been facing financial difficulties before March 2020 and any ‘damage’ to the business must have occurred after 11 March 2020.
- The credit programmes of the state-owned development bank (KfW):
The KfW is offering various schemes for businesses across all sectors of the economy. These include:
- The KfW Entrepreneur Loan scheme for businesses that have been active for at least five years.
- The ERP Start-Up Loan scheme for businesses that have been active for less than five years (but have been in existence for at least three years or can present two annual financial statements).
- the KfW Special Programme for both domestic and foreign enterprises that are majority-owned.
- the KfW Loan for Growth scheme for both domestic and foreign commercial enterprises (which are mainly privately owned) with a turnover of up to €2 billion as well as companies that provide energy services to a third party under a contracting agreement.
- The KfW Quick Loan scheme for businesses with less than 10 employees that have been active since at least 1 January 2019.
- Guarantees of the state-owned guarantee banks
State-owned guarantee banks are providing working capital loans and investments to SMEs that had a viable business model until the COVID-19 outbreak. The federal government is providing assistance to such banks directly, which includes increasing its risk share in those eligible banks by 10 per cent.
In addition, the State will guarantee up to 80 per cent of operating working capital loans and investments with a surety requirement of over €50 million.
For more information in relation to each scheme, please view the Germany schemes.
The UK government has launched two schemes and is due to introduce a third this month:
- The UK government-backed Coronavirus Business Interruption Loan Scheme
This scheme is currently available for small to medium-sized enterprises (with an annual turnover of less than £45 million). In accordance with this scheme, lenders are provided with a government-backed guarantee that, in the event the borrower fails to repay the debt facility, the government will instead pay the lender up to 80 percent of the debt facility.
- The Bank of England (BoE) COVID Corporate Finance Facility
This scheme is currently available and intends to help support liquidity among larger businesses which make a material contribution to the UK economy (e.g. by being a significant employer or having a large number of customers). The BoE will purchase commercial paper between 10am and 11am daily from issuers in the primary market and also eligible counterparties in the secondary market (such issuers will first need to make an application to the BoE).
- The UK government-backed Coronavirus Large Business Interruption Loan Scheme
The government has indicated that details of a separate scheme for firms whose annual turnover is between £45 million and £500 million (Larger Firms) will be announced in April 2020. The new scheme will allow Larger Firms who meet the eligibility criteria to borrow up to £25 million.
For further details on the UK schemes, including details relating to eligibility criteria and restrictions, please view the UK schemes.
Please note that this alert does not provide a comprehensive list of all COVID-19 reliefs available to businesses in France, Germany and the United Kingdom; however, we would be happy to discuss the availability of and application processes for other reliefs with you. Please speak to your usual Reed Smith contact or, alternatively, any of the authors.
Client Alert 2020-219