There is great expectation for the so-called Liquidity Decree, which will be examined today by the Italian Council of Ministers and which is said will provide for a state guarantee for approximately 200 billion euros in credit up to 25% of turnover for businesses (see here a previous article by BeBeez).
The new measure is said to affect small and large companies with up to 499 employees. The Minister of Economic Development Stefano Patuanelli said yesterday that the Guarantee Fund for SMEs that the government is strengthening “will act on three main strands: 100% guarantee for loans up to 25k euros, without any credit assessment ; 100% guarantee for loans up to 800k euros, with credit assessment; 90% guarantee for loans up to 5 million euros, being able to reach 100% with the counter-guarantee of the Confidi and with an evaluation which takes into account only the pre-crisis situation Covid-19”. Loans should be disbursed at a rate of 0.5% per year with a maturity of 6 years and there will be no cost for opening the practice.
It is to be seen whether companies of all sizes, including startups, will actually benefit from the new rules. Which will eventually be the interest rate applied and which will be the cost of the guarantee. If the Italian government aligns itself in this with other jurisdictions, such as Switzerland (see here a previous article by BeBeez), then finally it would go in the right direction to really help the production system and therefore in cascade all the workers to get back on track (on the subject see here also the video of the webinar Leanus-BeBeez on the effects of the coronavirus on the Italian companies financial statements for years 2020 and 2021).
Especially since European banks have now really had all the possible help from the international supervisory authorities in terms of capital ratios to be respected (see here a previous article by BeBeez on the latest ECB decisions) and in the matter of credit treatment for the purpose of their classification to calculate expected credit losses (see here a previous article by BeBeez on ECB decisions and another BeBeez article on the latest decisions of the EBA and the Basel Committee). Thus they will have much more capital to devote to new jobs and, if they wish, they will be able to absorb losses at the same time, if they decide to sell impaired loans.
This last point, however, deserves some attention, because if on the one hand it is good that the banks in this difficult moment suffer less pressure from the supervisory authorities on the subject of higher capital provisions against impaired loans on their books, on the other hand this fact could push them to put the problem aside, forgetting that a company which is in distress today but that it could be relaunched, if properly supported, has no time to wait. A company in distress today must be helped today, so if the bank does not have the appropriate tools or staff to solve the problem of that company, it must turn to those who do this as a job and can do it for the bank itself. Otherwise the bank must give up the credit to a specialized investor. And the bank must do it as quickly as possible.
But let’s come back to performing companies today, which however are in the need of new finance to overcome this difficult moment of turnover collapse. It should be considered that the new proposed measures essentially aim to replace the lost turnover with new debt and that debt, although also granted to favorable conditions, one day has to be repaid. For some companies this may not be a problem, but for others it will be. The issue must therefore be examined and solutions must be found (one can be found today in our Comments section here).