The Swiss Federal Council was quick to respond to impact of coronavirus prevention measures on businesses. Within a few days, it issued an emergency ordinance by which it pledged to act as guarantor for business loans provided by commercial banks. On Wednesday, March 25, 2020, the Federal Council and the Swiss National Bank published the most important information. The first emergency business loans were provided by Swiss banks on March 26, 2020. The emergency loans are meant to help businesses hit by coronavirus prevention measures to maintain liquidity until they can resume their regular business activities.
1. What kinds of coronavirus business loans are available?
Two different business loans are available to businesses: the Covid-19 Loan and the Covid-19 Loan Plus.
The Covid-19 Loan (first credit facility) encompasses loans of up to 500,000 Swiss francs. The interest rate is 0% per annum, so this is an interest-free loan. The federal government acts as guarantor for 100% of loan principal.
The Covid-19 Loan Plus (second credit facility) encompasses loans of between 500,000 and 20 million francs. The federal government acts as guarantor for 85% of loan principal. The bank which provides the loan must accept the risk for the remaining 15%. The interest rate is 0.5% per annum for the portion of the loan guaranteed by the federal government. The interest rates of the banks providing the loans apply to the remaining 15% of loan principal. The Zürcher Kantonalbank has decided to adopt the 0.5% interest per annum for the remaining 15%.
The Covid-19 Loan Plus is always combined with the Covid-19 Loan. That means a 0% annual interest rate always applies to the first 500,000 francs of loan principal. The higher Covid-19 Loan Plus interest rate only applies to loan principal in excess of 500,000 francs.
According to Swiss cantonal banks, the average size of Covid-19 loans granted by cantonal banks was 125,000 as of March 31, 2020. Practically no Plus loans of 500,000 francs or more had been applied for. The nationwide average Covid-19 loan size as of April 2, 2020 was 180,000 francs.
2. Are the Covid-19 loans cheap?
Yes. Interest rates for business loans are typically much higher. Additionally, the Federal Council specifies that the Covid-19 loans must be free of additional costs. Unlike personal loans, business loans typically come with additional fees on top of interest charges. It is important to note, however, that the interest rates of Covid-19 loans can be adjusted to match market conditions on an annual basis – but no earlier than March 31, 2021.
3. How does the loan provision process work?
The Covid-19 loans are provided by Swiss commercial banks. Businesses should apply for the loans at their business bank. Emergency loans are also provided by state-owned bank PostFinance, which is not normally allowed to offer loans. According to banks, applications for loans of up to 500,000 francs (the Covid-19 Loan) can be processed quickly and simply within 30 minutes.
Applications for loans above 500,000 francs (Covid-19 Loan Plus) require more careful processing. You can download applications for both Covid-19 loan types under: https://covid19.easygov.swiss
4. Are their caps on the size of coronavirus loans?
There are no fixed caps. Both kinds of Covid-19 loans are limited to a maximum of 10% of the applying company’s 2019 revenues. Example: If your company had 5 million francs of revenue in 2019, you can apply for a loan of up to 500,000 francs. Companies with revenues in excess of 500 million francs are not eligible for Covid-19 loans.
4. Is the total volume of coronavirus loans capped?
Yes. Originally, the total combined loan principal for all Covid-19 loans could not exceed 20 billion francs. On April 3, 2020, the Federal Council announced that it was raising this cap to 40 billion francs due to the high demand.
5. Can any company apply for a coronavirus loan?
No. In order to be eligible, businesses must meet these criteria, among others:
- The company must have been founded before March 1, 2020.
- The company cannot be in the process of bankruptcy, succession or liquidation at the time of application.
- The company’s revenues must be significantly impacted by coronavirus prevention measures.
Other criteria may apply in addition to these basic criteria. Banks reserve the right to review loan applications and to turn down applications if they choose to.
Companies which falsify information in loan applications (to take advantage of the favorable loan conditions, for example) can be fined up to 100,000 francs.
6. Do Swiss banks profit from the Covid-19 loans?
Yes. Mass bankruptcies in the wake of coronavirus prevention measures would pose a serious threat to banks. Many companies already have ongoing loans which they would be unable to repay after bankruptcy. The well-grounded hope is that the majority of bankruptcies can be prevented by providing emergency loans.
Additionally, banks can obtain refinancing from the Swiss National Bank at -0.75% interest per annum. Banks are free to choose whether or not to provide a company with a Covid-19 loan. In the case of Covid-19 Plus loans (for which banks accept 15% of the risk) in particular, banks are likely to review applications more closely.
Some banks, including Credit Suisse and UBS, have promised to donate any profits earned on Covid-19 loans.
7. Do coronavirus loans have to be amortized?
Yes. The loan principal and interest must be amortized in full within 5 years. The 5-year term can be extended to 7 years in some cases. However, the Federal Council is aware that many businesses will not be able to repay fully repay these loans.
8. Should my company apply for a coronavirus loan?
That depends on several factors. Firstly, your company must meet the criteria for a Covid-19 loan. You should also consider whether a Covid-19 loan is necessary, considering the other available options for financial assistance (like reduced working hours compensation). Bear in mind that Covid-19 loans must be repaid within a relatively short term.
At 0% interest per annum, the Covid-19 Loan (up to 500,000 francs) is extremely affordable. If an emergency loan is not enough to bridge your company’s liquidity gap, consider seeking advice from an expert. Standard business loans are the primary alternative to Covid-19 loans. However, the eligibility requirements and costs of conventional business loans from banks and other lenders are relatively unfavorable when compared to Covid-19 loans.
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