Many companies and freelancers who applied for credits guaranteed by the Official Credit Institute (ICO) that the Government launched in March 2020 to mitigate the impact of Covid-19 should begin shortly to amortize the credits received. The maximum two years of grace period (period in which only the interest and not the principal of the loan are paid) are about to expire, without some activities having fully recovered the normality prior to the health crisis. Although the entities expect a good performance of the guaranteed portfolio, there may be cases in which payments cannot be made. There are still several lifelines: you can request an extension of the loan repayment term, thus reducing the financial burden, and there is always the possibility of negotiating the conditions with the bank.
What are ICO loans for those affected by Covid-19?
After the outbreak of Covid, and within the framework of the plan to reactivate the economy and employment, the Government approved on March 17, 2020 a line of guarantees endowed with up to 100,000 million to guarantee the liquidity of the self-employed and companies. Subsequently, it approved a second line, of 40,000 million, aimed at promoting the realization of new business investment projects. It is the State that guarantees these credits, covering up to 80% of the principal in the case of SMEs or the self-employed, and up to 70% or 60% in the case of renewals for the rest of the companies.
The guaranteed financing was one of the first measures put in place to protect the productive fabric after the state of alarm was declared. The activation by tranches of credit lines has made it possible to introduce additional flexibility measures to respond to the needs of companies throughout these almost two years of pandemic.
When do the moratoriums on the guarantee lines expire?
The companies that requested publicly guaranteed loans, mostly between April and June 2020, and that extended the grace period to the maximum allowed of 24 months, will have to meet their financial obligations in the second quarter of this year. At first, during the first wave of the pandemic, the grace period was one year, but in November 2020 it was extended to two years. A total of 386,698 operations took advantage of this measure, which was in force until June 2021.
Thus, according to ICO data, 43% of all guaranteed loans will soon have to start repaying the principal in addition to interest. The remaining 60% is already facing the return of these credits.
Is it possible to further expand the shortcomings?
Yes, but only if an agreement is reached with the creditor bank. The Code of Good Practices approved in March 2021 allows entities and clients to voluntarily agree to extend the grace periods of the guaranteed operation, and the entity must notify the ICO of said extension by the latest date of June 1 of 2022.
On the other hand, the current norm contemplates extending the total life of the guaranteed loan up to ten years depending on the type of company. Initially, the return period was up to five years. Later, it was possible to request the extension in three additional years up to a limit of eight years. Now, it is possible to request, until June 1, 2022, additional extensions of 2 to 5 years without being able to exceed the maximum repayment term of 8 or 10 years.
Who can request the extension of the repayment terms?
Those companies whose turnover has fallen by more than 30% in 2020 compared to 2019. Likewise, there is the possibility that companies whose turnover has fallen by less than 30% may benefit from this measure if they meet the rest of the eligibility conditions, although It must be taken into account that in this case, an agreement must be reached with the entity that granted the financing.
Are there more debt renegotiation options?
Yes. In addition to the extension of the maturity of the guarantees, it is also possible until the deadline of June 1, 2022 to convert the guaranteed loan into participating loans, maintaining the coverage of the public guarantee. This average, explained from Bankinter, reinforces the own resources of the beneficiary companies, as these loans have a treatment equivalent to capital for commercial purposes. The company must have had a drop in its turnover of 30% in 2020 and must have presented a negative result after taxes in the profit and loss account for the year 2020. Likewise, the company must meet the requirements of not being in arrears in no financing subscribed with the financial entity and not be in bankruptcy.
And, as a last resort in force until June 2023, the Code of Good Practices also provides for direct transfers by the State to reduce the principal of the debt. This measure is supported by a line for the restructuring of financial debt with the guarantee of the State, endowed with 3,000 million euros. It will also entail an effort on the part of the financial entities granting the financing, which will assume a reduction for the proportional part of the loan that is not guaranteed.
What happens if finally the payments cannot be met?
In a context of a pandemic, in the business sector it is feared that there will be difficulties in repaying aid, especially those sectors most affected by the virus restrictions, such as tourism, transport and the hotel industry.
Once all avenues have been exhausted, if payment is not made, the client (the person who has received the money) is considered to be the one with the debt. The state is only a guarantor. From the ICO they explain that in these cases “credit recovery tasks will be carried out in accordance with financial regulations”.
Recently, the president of the Association of Self-Employed Workers (ATA) and vice president of the CEOE, Lorenzo Amor, has pointed out that “it would not be a bad idea” to think about “granting a new moratorium to be able to start repaying those credits” of “at least six months”.
How is the banking sector dealing with the situation?
Faced with the flood of maturities of the deficiencies in the second quarter, two years after they were granted, banks are facing the situation calmly, but with prudence. Currently, the delinquency rate stands at 4.3%, according to data from the Bank of Spain, the lowest since the beginning of 2009. The CEO of CaixaBank, Gonzalo Gortázar, recently said that he trusts that most of the ICO loans are paid normally. He pointed out that 3.5% of the amounts of loans guaranteed by the State are classified as delinquent, while the bank’s global average is 3.6%. For his part, the head of BBVA Spain, Peio Belausteguigoitia, maintains that the leverage of families and companies is reasonable and much lower than in other times.
How much money have the guarantee lines mobilized?
According to the latest available data, as of January 31, 2022, with the guarantee lines, more than 135,382 million euros in financing have been channeled to the productive fabric in 1,148,187 operations, of which more than 98% have been subscribed by SMEs and freelancers. According to ATA data, practically 800,000 freelancers in Spain accessed an ICO credit.
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