Good-practice code for state-guaranteed loans

On 13 May 2021 the BOE published the resolution of 12 May of the Secretariat of State for Economy and Business Support publishing the Council of Ministers’ agreement of 11 May approving the Good Practice Code for the renegotiation framework for customers with guaranteed financing, provided for in Royal Decree-law 5/2021. It implements the part of the solvency decree that deals with publicly guaranteed loans granted to companies and the self-employed during the pandemic.

The financial institutions that channelled those guarantees have one month to decide whether to sign up to the code, and the Treasury will publish the list of those that do and those that do not. For companies the interest is immediate: those with guaranteed loans maturing soon, or whose repayment has become difficult, can now ask for more time or a restructuring of the debt, provided they meet the requirements.

The three measures

The first is extending the maturity of guaranteed loans. For debtors with public aid of up to €1.8 million, the extension may be up to five years if there was no earlier extension, or two additional years if there already was one, provided the total term does not exceed ten years from the original signing; for those above that aid amount, the total limit is eight years. The institution extends the term at the same pace as the guarantee, with no additional procedures.

The second is converting the loan into a non-convertible participating loan, keeping the public guarantee, provided the debtor is a legal entity and its 2020 profit and loss account shows a loss after tax. The third is reducing the outstanding principal: the institution may claim from the guarantor the part covered by the guarantee, and bears the uncovered part proportionally. These last two measures apply only to debtors with aid below €1.8 million.

Requirements and limits

Debtors must have seen turnover fall by at least 30% in 2020 compared with 2019, not be in arrears or in insolvency proceedings, not appear as defaulters in the Bank of Spain’s Central Credit Register and not have been convicted of offences against the Treasury or Social Security. Those who do not reach the 30% fall may receive the extension if the institution agrees with them. Requests are filed with the institution, which has 45 calendar days to decide.

Those who take part also benefit from commitments by the institutions: keeping working-capital lines open until 31 December 2022 and not making the measures conditional on the purchase of other products. The cost of financing may only rise to pass on the higher cost of the guarantee. The measures are subject to European Union State aid rules, so there are caps on cumulative aid.

What to review

Companies with guaranteed loans should prepare the documentation as soon as possible: declared turnover for 2019 and 2020, profit and loss account, arrears situation and details of the public aid received, including the declaration on aid. It is worth asking each bank whether it has signed up to the code and what procedure it has set, and comparing the options before choosing one.

An extension of term lowers the instalment but raises the total cost; a participating loan improves the balance sheet but has implications for cost and accounting treatment. That is why it is useful to analyse with the financial adviser which measure best fits the business plan, and to bear in mind there is a deadline: 15 October 2021. This information is general in nature.

The code offers room to viable companies that need it, but only to those who ask in time and with their paperwork in order.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.