France to invest $20 billion in guaranteed loans by the state to avoid small-business bankruptcies

Officials said that France will raise 20 billion dollars ($23 billion) in quasi equity loans to small businesses affected by coronavirus crises. They also offer investors a guarantee from the state against the first 2 billion dollar loss.

The French government fears that companies will go bankrupt if they are already struggling with record levels of debt before the crisis. It is attempting to combat the economic effects of COVID-19.

According to the plan, banks would lend first to small and medium-sized companies and then sell 90% to institutional investors. If you are looking for the best lender, use https://www.paydaychampion.com/ to improve your guaranteed online loans.

This would reduce banks’ risk exposure by 10% on loans while channeling funds towards viable businesses.

Because the public guarantee is involved in the program, EU state aid regulators have to approve it, including the interest rate.

A source at the Ministry of Finance said that the discussion was going well and that the European Commission is very interested. However, they have yet to agree on a figure.

Another source close to the talks stated that the interest rate will likely be between 3% and 5%, as the loans are lower than other debts on companies’ balance sheets.

WAVE OF BANKRUPTCY

The loans with maturities at least seven years, and being subordinated to claims from other creditors, would have the benefit of not being listed as debt on the balance sheets. This would allow for more resources for investment and operation, which is essential for economic recovery.

Although French law allows for such loans, banks are reluctant to use them because they have to save more capital to meet the higher risks.

The crisis has weakened cash flow, so the French Treasury estimates that small and medium-sized companies will require equity of up to $ 20 Billion.

Euler Hermes estimates that companies can collectively be under-capitalized up to $30 billion. She is a credit insurance company and closely monitors balance sheets.

Government measures to maintain their financial stability have prevented a flood of bankruptcies by providing more than $ 120 million in state-guaranteed loans to businesses to meet immediate cash flow requirements.

According to Altares research, the number of business bankruptcies has fallen to levels that have not been seen since 1989.

Altares believes that liquidation was the result of three of the four bankruptcy cases in France in the third quarter. This could indicate an increase in deposits in the first quarter 2021. (1 $ = 0.8536 dollars)

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