The new decree to help businesses

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The government on Monday evening has approved a new decree that provides financial guarantees of € 400 billion so that companies can access the loan on favorable terms: that is, they can obtain the bank credit necessary to face the closing period imposed by the quarantine and the decline in business due to the crisis economy caused by the COVID-19 pandemic.

– Also read: We will have a new big recession

The guarantees decided yesterday will be added to those for 350 billion established by the previous decree “Care-Italy“, For a total potential of 750 billion euros. “A powerful guarantee”, as Economy Minister Roberto Gualtieri called it. This intervention is theoretically the most significant in all of Europe, smaller only than the German one (which, however, concerns a much larger economy).

These guarantees will be managed by SACE, a company of the Cassa Depositi e Prestiti. Companies that need money with which to pay wages and other fixed costs will be able to request the guarantee that, in the event of default, the State will repay all or part of the loan received. In this way the banks will be reassured and will lend money on very advantageous terms. Minister Gualtieri said that the possibility of requesting guarantees will be operational in the coming days.

To get the guarantees there are a number of conditions that limit who exactly can ask what. The loans are intended for VAT numbers, companies and sole proprietorships, but the companies that request them will have to agree not to distribute dividends (ie earnings) to their members and shareholders for 2020. The maximum that can be requested is a loan equal to 25 per cent of 2019 turnover, or double the personnel costs.

The amount of the guarantees on the total loan will drop as the size of the company requesting it increases (the lower the part of the guaranteed loan, the greater the interest and other conditions requested by the banks in exchange). The 100 per cent guarantees will be applied only on loans up to € 25 thousand and for another limited number of cases. The guarantees will go down to cover 90 percent of the loan for companies with fewer than 5,000 employees, and so on up to 70 percent coverage for larger companies.

Loans will be repaid within six years. Interest rates, writes the Sole 24 Ore, will probably hover between 0.2 and 0.5 percent, therefore very low; the first payments will be delayed with respect to the granting of the loan for one to two years. Companies that are already in crisis or that had deteriorated exposure, that is to say essentially overdue and unpaid debts, before the start of the crisis will not be able to apply for the loan.

Given that there is talk of guarantees, whether the total resources that the government claims to be able to mobilize will be reached will depend on what businesses and banks will do. Of the 750 billion euros of total guarantees that have been discussed these days, the government will budget only a small fraction. In other words, 750 billion will not actually be spent: the money will be lent to businesses by banks and businesses will return it to banks. The state will take over only in cases where companies fail to repay the loan.

The idea behind public guarantees is in fact that only a small part of the companies will not repay the loans, and therefore the state will have to set aside a few tens of billions to deal with these events. By allocating a relatively small amount, therefore, the State can facilitate access to credit for figures of an order of magnitude greater.

Gualtieri said that in a forthcoming decree the government will allocate 30 billion euros for this purpose, which will be added to the additional 20 billion euros allocated with the “Cura-Italia” decree. For the moment, therefore, the intervention promised by the government amounts to 50 billion euros, but is almost certainly destined to increase as soon as the new measures are announced to protect household incomes after businesses.

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