26 May 2020, text: Georg Rupf, photo: Deposit
In this current emergency situation, securing liquidity and thus the company’s solvency is the top priority. With the COVID-19 credit facilities, the Federal Council is offering an unbureaucratic and extremely effective means of support for our small and medium-sized enterprises. But this instrument is tied to clear preconditions and significantly restricts entrepreneurial freedom of action while the credit is being utilised.
With this in mind, I believe that COVID-19 credits should be seen as a last resort for securing liquidity. Whenever possible, other financial measures should first be examined and implemented.
If a company has to resort to a COVID-19 credit to secure its ongoing liquidity needs, I would generally apply for the maximum possible credit amount, i.e. 10% of last year’s turnover. In this way, a certain liquidity cushion can at least be maintained for the coming months, which will be associated with many uncertainties, in addition to the directly determined financing requirements.
If it turns out that the credit amount is not fully utilised after all, the corresponding amount can be repaid. The repayment terms are generally flexible. Thus companies may repay the credit according to their own needs within the envisaged maximum term of five years or, in cases of hardship, seven years. According to the model contract, the bank may require periodic repayments and may reduce the credit limit by unused portions of the credit on its own initiative.
While the COVID-19 credits are taken up, entrepreneurial freedom is in any case restricted. This provides a strong incentive to repay the guaranteed credit as soon as possible.
It is also easily possible to combine the COVID credit instrument with other financing solutions. The guaranteed credit can thus become part of an overall financing concept, which may be particularly important when financing larger companies.
On the website of the Federal Department of Finance you will find information on applying for bridging credits for companies and other useful links.