Covid-19: State-Guaranteed Loans In France – Finance and Banking

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

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

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

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,

  • 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
  • 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
    1. the debt/equity ratio of the undertaking has been higher than
      7.5; and
    2. 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

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.

Article originally published on 7 May 2020

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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