Many companies and self-employed who have requested loans guaranteed by the Official Credit Institute (ICO) that the government launched in March 2020 to mitigate the impact of Covid-19 should start soon to cushion the credits has received. The maximum grace period of two years (period during which only the interest and not the principal of the loan is paid) is about to expire, without certain activities having fully returned to the normality of before the health crisis. Although entities expect good performance from the guaranteed portfolio, there may be instances where 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 people affected by Covid-19?

After the Covid epidemic, and as part of the economic and employment recovery plan, the Government approved on March 17, 2020 a line of guarantees endowed with 100,000 million to guarantee the liquidity of the self-employed. and businesses. Subsequently, it approved a second line, of 40,000 million, aimed at encouraging 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 event of renewal for the rest of the companies.

Guaranteed financing was one of the first measures put in place to protect the productive fabric after the declaration of the state of alert. The activation in tranches of credit lines has allowed the introduction of additional flexibility measures to meet the needs of companies throughout these almost two years of the pandemic.

When do the moratoriums on the lines of guarantee expire?

Companies that applied for state-guaranteed loans, mainly between April and June 2020, and extended the grace period to the maximum allowed by 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 benefited from this measure, which was in force until June 2021.

So, according to ICO data, 43% of all secured loans will soon have to start repaying principal in addition to interest. The remaining 60% are already faced with the return of these credits.

Is it possible to further widen the gaps?

Yes, but only if an agreement is reached with the creditor bank. The Code of Practice approved in March 2021 allows entities and clients to voluntarily agree to extend secured transaction grace periods, and the entity must notify the ICO of such extension no later than June 1, 2022 .

On the other hand, the current standard envisages extending the total duration of the guaranteed loan up to ten years depending on the type of business. Initially, the return period was up to five years. Later, it was possible to request an extension of three additional years within the limit of eight years. From now on, it is possible to request, until June 1, 2022, additional extensions of 2 to 5 years without being able to exceed the maximum repayment period of 8 or 10 years.

Who can request the extension of the reimbursement deadlines?

Companies whose turnover fell by more than 30% in 2020 compared to 2019. Similarly, it is possible that companies whose turnover fell by less than 30% could benefit from this measure if they fulfill the rest of the eligibility requirements, 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 extending the maturity of the guarantees, it is also possible until the maturity date of June 1, 2022 to convert the guaranteed loan into equity loans, while maintaining the coverage of the public guarantee. This average, explained by Bankinter, reinforces the own resources of the beneficiary companies, since these loans benefit from a treatment equivalent to capital for commercial purposes. The company must have experienced a drop in turnover of 30% in 2020 and must have presented a negative result after taxes in the income statement for the year 2020. Similarly, the company must meet the requirements of not not be late in payment under any circumstances. financing subscribed with the financial entity and not be bankrupt.

And, as a last resort in force until June 2023, the code of good practice also provides for direct transfers by the State to reduce the principal of the debt. This measure is supported by a financial debt restructuring line with the guarantee of the State, endowed with 3,000 million euros. This 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 ultimately the payments cannot be honoured?

In a context that is still pandemic, there are fears in the business sector of difficulties in reimbursing aid, in particular the sectors most affected by the restrictions of the virus, such as tourism, transport and the hotel industry.

Once all avenues have been exhausted, if payment is not made, the customer (the person who received the money) is considered the debtor. 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 Independent Workers (ATA) and vice-president of the CEOE, Lorenzo Amor, pointed out that “it would not be a bad idea” to think of “granting a new moratorium to be able to start reimbursing these credits” of “at least six months”.

How is the banking sector handling the situation?

Faced with the flood of deadlines for deficiencies in the second quarter, two years after they were granted, the banks are facing the situation calmly, but with caution. Currently, the delinquency rate stands at 4.3%, according to data from the Bank of Spain, the lowest since the beginning of 2009. CaixaBank CEO Gonzalo Gortázar recently said he was convinced that most ICO loans were repaid normally. He pointed out that 3.5% of loan amounts guaranteed by the state are classified as overdue, while the bank’s overall 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 data available, as of January 31, 2022, with the lines of guarantee, more than 135,382 million euros in financing had been channeled to the productive fabric in 1,148,187 operations, of which more than 98% were subscribed by SMEs and freelancers. . According to ATA data, nearly 800,000 freelancers in Spain have accessed ICO credit.