- The Official State Gazette of 26 March published the agreement that activates the first 20 billion euro tranche of the ICO guarantee line.
- Half is reserved for small businesses and the self-employed, with a guarantee of up to 80% of the loan; the rest goes to other companies, with up to 70% on new operations.
- Loans signed or renewed since 17 March are covered, and they are requested through the lender.
The Official State Gazette of 26 March 2020 published the Council of Ministers agreement of the 24th approving the features of the first tranche of the guarantee line for companies and the self-employed, worth 20 billion euros. It implements Royal Decree-Law 8/2020 of 17 March, which provided for a line of up to 100 billion. The guarantee is provided by the Ministry of Economic Affairs and Digital Transformation and managed by the Official Credit Institute (ICO), which must get it up and running within ten days.
The idea is that banks keep lending at a time when many companies lack income and are left with fixed costs. When the State guarantees part of a loan, it shares the risk with the lender, which finds it easier to grant credit. For the business owner it is not a grant: it is financing that has to be repaid, with a public guarantee behind it.
What it covers and for whom
Of the 20 billion in the tranche, 10,000 million goes to small businesses and the self-employed and 10,000 million to companies that are not. Small and medium-sized companies are those with fewer than 250 people and no more than 50 million in turnover or 43 million in balance sheet. The guarantee covers at most 80% of the loan for small businesses and the self-employed and, for the rest, 70% of new operations and 60% of renewals. The maximum term is five years and, in principle, applications can be made until 30 September 2020.
To qualify, you must be domiciled in Spain, be affected by the COVID-19 crisis and not be in arrears on the Bank of Spain’s credit register or in insolvency proceedings. Loans must have been signed or renewed after 17 March and serve needs such as paying wages or invoices, or meeting financial or tax maturities.
How it works in practice
The loan is granted by a bank or other authorised lender, which assesses the risk on operations of up to 50 million; above that figure the ICO requires a complementary analysis. The guarantee has a cost: on loans of up to 1.5 million, 20 basis points on the guaranteed amount. Aid of that size falls under the European de minimis rules and, above it, under the temporary state aid framework.
One point sometimes overlooked: the guarantee protects the lender, not the borrower. Even if the State covers up to 80% of a loss, the business owner still owes the whole amount lent, and the bank may demand additional security or apply its own risk criteria. The guarantee makes it easier for credit to be granted, but it neither makes it free nor automatic.
What to prepare
Before going to the bank, it is worth quantifying the liquidity need: payroll, suppliers, taxes and instalments over the coming months, with a realistic cash plan. Gather also the documents that show the impact of the crisis and the state of the accounts, and check that you are up to date with the tax authorities and social security.
And compare alternatives before signing: the furlough scheme, tax deferrals, moratoria on other debts. Borrowing more than necessary can solve the month and complicate the following years. Before formalising the loan, review the rate, fees, grace period and repayment term with your adviser.
The guarantee makes credit easier, but the debt remains yours.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
