State aid scheme to support Romanian SMEs in the context of the COVID-19 pandemic in light of the new amendments via GEO no. 42/2020

Benefiting from a budget of RON 781m, the state aid scheme proposes measures to guarantee loans and to subsidise interest, as well as the related commissions, allocated to SMEs. The state aid scheme was set up by Government Emergency Ordinance no. 42/2020 of 4 April 2020 and will be implemented after its approval by the European Commission.

Government guarantees for loans accessed by SMEs

Within this programme, the Government will guarantee a maximum of 80 % of the value financed for the investment and working capital loans accessed by SMEs. The general cap for the guarantee offered by the state to a beneficiary may not exceed a cumulative value of RON 10m. Also, the maximum value financed for the working capital financing loans is RON 5m, respectively RON 10m for investment loans.

In case of working capital loans for micro-enterprises and small enterprises, the state guarantee is a maximum of 90 % of the loan principal, in the maximum amount of RON 500,000 for micro-enterprises, respectively a maximum of RON 1m for small enterprises.

The state aid scheme also provides a special ceiling, represented by the largest amount between the following amounts:

• double of the wage expenses, including the compulsory social contributions, registered at the level of 2019. For companies established after 1 January 2019, the maximum amount of the loan cannot exceed the estimated amount for the first two years of activity; or
• 25 % of the beneficiary's net turnover for 2019, respectively the gross income or the norm of income in the case of natural persons who obtain income from independent activities; or
• a value that results from its liquidity needs for the next 18 months, aiming to cover both working capital and investment costs.

Undertakings can access more credits or lines of credit within this programme, but their cumulative value, excluding interest, commissions and bank charges, must comply with the foregoing caps.

Grants for subsidising interest, risk and management fees

The government will fully subsidise both the interest on the secured loans and the value of the related risk and management fees, up to EUR 800,000 per company.

For companies active in the fisheries and aquaculture sector, this grant will not exceed EUR 120,000, respectively EUR 100,000 for companies active in the field of primary production of agricultural products.

Duration of the state aid scheme

The period for selecting the beneficiaries and issuing the guarantee letters/financing agreements extends until 31 December 2020. The state will subsidise interest and management and risk fees related to loans/credit lines contracted under the state aid scheme until 31 December 2020.

The extension of the interest rates may be further extended for the next two years, provided that the economic growth estimated by the National Commission for Strategy and Forecast is outperformed by the economic growth of 2020.

Eligibility

In order to benefit from the state aid scheme, micro-enterprises, small and medium-sized enterprises that have encountered difficulties or subsequently encounter difficulties due to the COVID-19 pandemic, should meet a number of criteria, namely:

• undertake not to lay off existing staff as of 4 April 2020 until 31 December 2020;
• are not in difficulty within the meaning of the European Commission Guidelines on state aid for rescuing and restructuring distressed non-financial companies, respectively they have not lost more than half of their share capital in the last two years and more than a quarter of this capital in the last 12 months, they are not undergoing an insolvency proceeding, foreclosure proceeding, operational closure, dissolution, liquidation, special administration or concord, respectively they do not meet the criteria for undergoing an insolvency proceeding at the request of the creditors, according to the declaration on their own responsibility;
• do not stand as defendants in litigation with the Ministry of Public Finance and/or with the partner credit institution;
• do not register defaults on loans, including financial leasing, for the last six months prior to the request for the state guarantee or, if they register arrears, they are classified in categories A, B, C in the Credit Risk Central database;
• are not under a ban to issue checks as at the date of the loan approval and they are not listed with promissory notes incidents in the last six months in the database of the Payment Incident Office;
• secure, for the credit institution, collaterals that, along with the state guarantee and the real estate and/or movable mortgage on the assets financed by the loan in case of investment loans, cover at least 100 % of the financed amount;
• are eligible according to the internal regulations of the credit institution;
• do not register outstanding fiscal obligations and other budgetary debts managed by the central fiscal body. In case it registers such outstanding obligations, the beneficiary undertakes to pay them from the loan/credit line for working capital granted under the programme;
• no decisions on state aid recovery have been issued against them or, if such decisions have been issued, they have already been executed, according to the legal provisions in force;
• did not request other kinds of state aid for the same eligible costs.

There will be no guarantees under this scheme for SMEs active in the gambling and betting sector, manufacturing or marketing of weapons, ammunition, explosives, tobacco, alcohol, substances under national control, psychotropic plants and drugs, respectively those active in investigation and security activities.

authors: Georgiana Bădescu, Mona Banu