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For Markus H. (name changed by the editor), the state-guaranteed bridging loan was the salvation. H. runs a company in the event industry in Lower Austria. The corona crisis hit him hard, his sales collapsed completely. He pays 13,000 euros every month for renting his 2,500 square meter warehouse alone.
He applied to the bank for a loan of 400,000 euros. He would be able to make ends meet by January 2021. The peculiarity of state-guaranteed loans: The state guarantees the loan to the bank. If a company cannot repay the money, the state steps in.
However, the bank only granted him half. At the beginning of June he receives the loan approval. It wasn’t until later that he realized that the contract contained a clause. “We point out that any fixed cost subsidies granted are to be used for the early repayment of this financing.” In retrospect, Markus H. had no other choice: “Either I sign the loan or I lock it.” Now he is waiting for the approval of the fixed cost subsidy. The entrepreneur does not know how much of this goes into repaying the loan. He has not yet spoken to his bank about it.
Such additional clauses are not the usual practice when granting loans, especially not those secured by the state. But it is not an isolated case either. “Some entrepreneurs have reported to us that it is explicitly stated in various clauses that funds from the fixed cost subsidy will be kept,” says Markus Gratzer, General Secretary of the Austrian Hotel Association (ÖHV), of the “Wiener Zeitung”.
Credit or Electricity Bill?
The companies are angry about the approach of the banks. Because the fixed cost subsidy is intended for rents, leasing rates and costs for electricity and gas for small and medium-sized companies. The state funds are intended to ensure the liquidity of the companies – with the advantage that they do not have to repay the money to the state. How much fixed cost subsidy a company receives depends on the loss of sales. If the company misses 60 to 80 percent of sales, it receives 50 percent of the fixed costs as a subsidy. There is a maximum of 75 percent.
So are banks allowed to use the money from fixed cost subsidies to repay existing loans? The answer from the Ministry of Finance is clear: “That is not correct and was expressly excluded in the guidelines for the fixed cost subsidy,” it says. The fixed cost subsidy was started in mid-June. To date, 245 million euros have been paid out. According to the ministry, there are 33,200 applications paid out by companies.
The fact that such clauses have found their way into the loan agreements for the bridging aid is due to regulatory reasons. In the original regulation of the Ministry of Economic Affairs, which regulates the state guarantees, it was provided that the fixed cost subsidy should be used for loan repayments. That was later changed. Now the money should flow into system maintenance, i.e. rent, energy, personnel costs. “The credit check is always carried out individually. We have always adhered to the applicable guidelines,” says a spokesman for Erste Bank Austria.
Since mid-March, domestic banks have granted loans amounting to 57 billion euros, explains Franz Rudorfer, chairman of the federal banking and insurance division in the Chamber of Commerce (WKO). “The banks have understood how important they are to ensuring liquidity,” he says. “You only access it (the fixed cost subsidy, note) when it is really necessary and there is no other way.”
Fear of loan defaults.
Thanks to state liability for default things should actually be different. Because the bridging loan is now 100 percent state-secured. If the entrepreneur cannot repay it, the state steps in with tax money. According to the industry, it’s not that simple. The loans are secured by the state, but the credit check and drawing up contracts are the responsibility of the bank. In this case, too, it must adhere to regulatory requirements and should not grant loans to anyone who would not be creditworthy even without Corona.
The banks fear that should defaults occur, the state will not step in. With the argument that the company concerned was not even creditworthy and the loan should never have been paid out. In this case, the bank would be left with the costs. According to the state development bank austriawirtschaft service, there are “a few” cases in which state liability has already arisen. These are companies that have filed for bankruptcy. The state is currently liable for bridging loans in the amount of 6.64 billion euros. Most have to be repaid from January and have a term of three to five years.
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