Article 6 of the French amending finance law for 2020 of 23 March 2020 n° 2020-289 provides that the French State may guarantee loans granted by credit institutions, finance companies and crowdfunding lenders from 16 March 2020 through 31 December 2020 to non-financial undertakings registered in France, up to a total guaranteed outstanding amount of EUR 300 billion. This scheme is the subject of a regulation dated 23 March 2020 as amended successively on 17 April 2020 and 6 May 2020. The Ministry of the Economy also published a document entitled "Frequently Asked Questions - State-guaranteed loans" dated 23 April 2020 (hereinafter the "FAQ").
The objective of such State aid is "to remedy a serious disturbance in the economy of a Member State" in accordance with Article 107 of the Treaty on the Functioning of the European Union. The European Commission confirmed in decision SA 56709 of 21 March 2020 that the conditions for the granting of the guarantee by the French State under this scheme were in line with the temporary framework adopted by the European Commission on 19 March 2020, which was subsequently amended on 3 April 2020.
A loan can thus be guaranteed by the State by up to 90% of the principal, interest and accessories if the business has less than 5,000 employees in its last financial year (or 16 March 2019 if this is its first financial year) and has a turnover of less than EUR 1.5 billion.
For businesses employing at least 5,000 employees or with a turnover of more than EUR 1.5 billion, this percentage is reduced to 80% or even 70% unless there is a derogation. Some of the following rules may also be subject to other derogations in the case of such large businesses.
In this article, we shall examine (1) the terms and conditions of State-guaranteed loans ("SGLs") and (2) the eligibility conditions of the companies to which these loans may be granted.
1. Terms and conditions of SGLs
1.1 Maximum SGL amount
The loan amount may represent up to 25% of the business's turnover excluding tax in 2019 or the last financial year. If certified accounts are not available, it is possible to have recourse to a certificate from a chartered accountant.
There is a specific case concerning innovative companies or those meeting at least one of the criteria set out in Article D. 313-45-1, II of the French Code for the Entry and Residence of Foreigners and Right of Asylum. In this instance, the loan ceiling is up to twice the total 2019 payroll (for France), excluding employer contributions, if this amount is greater than 25% of the 2019 turnover excluding tax.
For companies founded on or after 1 January 2019, the maximum amount of the SGL corresponds to the estimated French payroll for the first two years of activity.
1.2 Purpose of SGLs
Funds from a State-guaranteed loan do not have to be allocated to a specific purpose.
However, it is not possible to refinance earlier loans with State-guaranteed loans since "the lending institution, or participatory finance intermediary [crowdfunder] acting on behalf of the lenders, must also demonstrate, in the event the guarantee referred to in Article 1 is called, that after the grant of the loan covered by that guarantee, the level of its assistance to the borrower was higher than the level of its assistance to the borrower on 16 March 2020, adjusted for reductions between those two dates resulting from the amortisation schedule prior to 16 March 2020 or from a decision by the borrower". This is why State-guaranteed loans are generally considered "new money" loans.
1.3 Duration and amortisation profile
The State-guaranteed loan automatically includes a one-year deferral, i.e. the borrower has nothing to repay for the first 12 months. At the end of that year, the borrower has the right to decide on the duration of the amortisation of the loan, up to a maximum of five additional years (one, two, three, four or five years). The borrower may also choose to prepay part of the loan at the end of the first year and amortise the remainder.
1.4 Interest rates and margin
There is no legal provision, either in the law or in the decree, which regulates the interest rate of loans, but the FAQ states that "the banks, through the President of the French Banking Federation, have undertaken to grant [these loans] 'at cost'."
The FAQ also states that "in practical terms, this means that the rate for the borrower is the so-called resource rate of the lending bank, currently close to 0% for the first year, plus the guarantee premium, applied to the principal of the loan and the scale of which is public and depends on the size of the company and the maturity of the guaranteed loan. As the cost of funds varies from one bank to another, there may be small differences in the rates on State-guaranteed loans from one bank to another".
Thus, the cost of the loan is the result of the addition of the interest rate of the relevant bank and the fee for the State guarantee detailed below (1.5).
1.5 Guarantee fee due to the State
The guarantee fee due to the State shall be paid by the borrower.
In the case of businesses (i) with no more than 250 employees and (ii) with a turnover not exceeding EUR 50 million and/or a balance-sheet total not exceeding EUR 43 million, the rate of this fee is:
- 0.25% for the first year;
- 0.5% for the first additional year, where applicable;
- 0.5% for the second additional year, where applicable;
- 1% in the third additional year, where applicable;
- 1% in the fourth additional year, where applicable;
- 1% in the fifth additional year, where applicable.
For businesses with more than 250 employees or with both a turnover of more than EUR 50 million and a balance sheet total of more than EUR 43 million, the rate is twice the rate indicated above.
With regard to the base of these fees, the decree of March 23, 2020 specifies that they "are collected for the portion guaranteed by Bpifrance Financement SA from the lending institution, in the name, on behalf and under the control of the State". It specifies that 90% of the outstanding principal, interest and accessories of the State-guaranteed loan is guaranteed by the State if the company has fewer than 5,000 employees and less than EUR 1.5 billion in turnover.
In regards to their due date, guarantee fees are levied in a first instalment when the guarantee is granted, and in a second instalment, where applicable, when the borrower exercises the clause allowing the loan to be amortised over an additional period calculated in terms of a number of years. However, according to the FAQ, "in accordance with the State's request that the borrower should have nothing to disburse in the first year, the professional or business will not be asked to pay these fees during the first 12 months after signature: the bank will carry the cost of the guarantee over the first 12 months".
1.6 Security interests securing the portion not guaranteed by the State
If the loan is granted to a business with fewer than 5,000 employees and a turnover of less than EUR 1.5 billion, the 10% share that is not guaranteed by the State cannot be secured by another "guarantee or security interest".
However, according to the FAQ, it is possible for a bank to require credit life insurance and a State-guaranteed loan granted under an agreement further to conciliation proceedings would benefit from the conciliation lien.
2. Eligibility conditions for businesses
2.1 Eligible sectors of activity
Eligible borrowers are all businesses, whether incorporated or not, including artisans, merchants, farmers, liberal professions and micro-entrepreneurs, as well as associations and foundations with an economic activity listed in the national business register, except:
- credit institutions and finance companies, as well as
- real estate civil companies ("sociétés civiles immobilières") other than construction-sale real estate civil companies ("sociétés civiles immobilières de construction-vente"), real estate civil companies owning mainly classified or registered historical monuments within the meaning of the law of 31 December 1913 on historical monuments and which collect revenues related to the reception of the public (for these companies, the turnover to be taken into account is limited to the revenues related to the reception of the public), and real estate civil companies wholly owned by OPCIs (real estate investment trusts), SCPIs (investment real estate civil companies) or OPPCIs (professional real estate investment trusts).
The FAQ specifies that "sociétés d'économie mixte (SEM)", "entreprises publiques locales (EPL)" and "établissements public à caractère industriel et commercial (EPIC)" are eligible, as are payment institutions, electronic money institutions and portfolio management companies.
2.2 Exclusion of undertakings in difficulty
The regulation of 23 March 2020 as amended on 6 May 2020 excludes businesses which, as at 31 December 2019, were undergoing a judicial liquidation or professional recovery proceeding in case of natural persons or, in case of natural persons or legal entities, were going through the observation period of a safeguard or recovery proceeding. It's noted that enterprises for which a safeguard or recovery plan was ordered by a court prior to the date on which the loan was granted remain in principle eligible for the State-guaranteed loan according to the regulation.
According to decision SA 56709 of 21 March 2020, the scheme cannot be granted either to undertakings in difficulty or which were in difficulty on 31 December 2019 (but it can be granted to those which became in difficulty following the emergence of the COVID-19 pandemic), which is confirmed by the FAQ.
Decision SA 56709 and the FAQ refer to the definition of an undertaking in difficulty in Article 2(18) of European Regulation 651/2014 of 17 June 2014, which also covers:
- any limited liability company within the meaning of Directive 2013/34/EU (such as a "société à responsabilité limiitée (SARL)", a "société par actions simplifiée (SAS)", a "société anonyme (SA)" or a "société en commandite par actions (SCA)") which has lost more than half of its share capital or any so-called unlimited liability company within the meaning of Directive 2013/34/EU (such as a "société en nom collectif (SNC)" or a "société en commandite simple (SCS)") which has lost more than half of its capital as shown in the company's accounts, has disappeared due to accumulated losses, except (in each case) if it is a small and medium-sized enterprise within the meaning of this European Regulation (an enterprise which employs fewer than 250 persons and has an annual turnover not exceeding EUR 50 million or an annual balance sheet total not exceeding EUR 43 million) which has been in existence for less than 3 years;
- any business that "fulfils, according to the national law applicable to it, the conditions for submission to collective insolvency proceedings at the request of its creditors", i.e. any business in a state of cessation of payments even if no judicial recovery or liquidation proceedings are yet commenced;
- any business that "has received rescue aid and has not yet repaid the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan", it being specified that this could include a business that is undergoing a safeguard or judicial recovery plan if it has received a "restructuring aid";
- any business, other than a small and medium-sized enterprise within the meaning of this European Regulation, if for the past two years:
- the debt/equity ratio of the undertaking has been higher than 7.5; and
- the EBIDTA interest coverage ratio of the undertaking has been less than 1.0.
The eligibility criteria for State-guaranteed loans are fairly clear and banks seemingly grant them quite easily, with the refusal rate being less than 5% according to the French Banking Federation.
If your business wishes to benefit from this scheme, it is advisable to contact a bank to apply for a loan. After a review of your business's situation and the eligibility criteria set out above, the bank will grant pre-approval. The formalities will then be carried out on the Bpifrance website.