The details with regard to the so-called COVID-19 loans are governed by the ordinance, dated 25 March 2020 by the Swiss Federal Council in connection with the Government backed COVID-19 guarantees and an explanatory statement by the Swiss Federal Department of Finance, dated 25 March 2020. As of Thursday, 26 March 2020, eligible SMEs are entitled to apply for government-guaranteed COVID-19 loans directly via their primary bank provider to receive funding of up to CHF 500’000 at 0% p.a. interest rates, respectively up to CHF 20m at 0.5% p.a. interest rates. The loans are available until 31 July 2020.
On 20 March 2020, the Federal Council announced a comprehensive package of measures to mitigate the economic consequences of the COVID-19 pandemic. One of these measures was the introduction of government-guaranteed loans from Swiss banks as an interim measure for Swiss small and medium sized enterprises (“SMEs”), including sole proprietors and partnerships by providing them with sufficient liquidity to cover their current fixed costs despite a COVID-19 related loss of turnover. The federal government expects to provide Swiss SME’s with approx. CHF 20bn in financing to cover liquidity shortages in the coming weeks.
In order to be entitled for COVID-19 loans, SMEs need to meet the following criteria:
- Established / incorporated prior to 1 March 2020;
- No ongoing debt collection or liquidation proceedings;
- Significant negative impact on the turnover due to the COVID-19 pandemic;
- Not benefiting from federal financial support measures introduced in the areas of culture or sport;
- The annual turnover must be lower than CHF 500 million.
The company / individual seeking a respective COVID-19 loan declares it’s entitlement towards the bank and is entitled to apply for a loan of up to 10% of the turnover, respectively CHF 500’000 fully guaranteed by the Federal Government. The entitled turnover is derived from the turnover of financial year 2019 (2018 data may be used if no sufficient 2019 data would be available). The processing bank is not required to impose further checks.
In case a company (incorporated in Switzerland) seeks COVID-19 loans in excess of CHF 500’000, the Federal Government will guarantee 85% whilst the primary bank provider will bear the risk for the remaining 15%. Therefore, standard credit checks have to be imposed on the borrowing entity and the approval process may be slower.
The banks may provide the respective companies / individuals additional loans in connection with the respective government backed loans at their own risks.
Requirement to repay / applicable interest rates / Qualification
The guarantee by the Federal Government of COVID-19 loans will last for five business years, with the requirement to repay the respective loans within five business years at the latest. In order cope with cases of “excessive” hardship, a company / individual may apply for an extension of an additional two years.
The COVID-19 loans will be subject an annual interest published by the Swiss Federal Department of Finance on an annual basis by 31 March. The interest applicable for 2020 will be as follows:
|a.) COVID-19 loans up to CHF 500’000:||0.0%|
|b.) COVID-19 loans above CHF 500’000:||0.5%|
|c.) Connected loans by banks:||according to the agreement with the bank|
In order to avoid companies being considered “over-indebted” for commercial law purposes, a COVID-19 loan up to CHF 500’000 may be disregarded until 31 March 2022.
Restrictions on “use-of-funds”
In order to allow government guaranteed COVID-19 loans to be used in line with the intended purpose: covering fix costs of companies / individuals with liquidity shortages due to the COVID-19 situation. The funds received from the bank provider are subject to tight restrictions with regard to the use of funds, under which the following will be prohibited:
- Funding of new investments (exceptions apply for required replacements);
- Distribution of profits as dividends to shareholders and/or repay capital contributions;
- Granting of loans (especially to shareholders) / refinancing of existing loans; creating more beneficial terms for related party lenders of existing loans;
- Repayment of intercompany payables abroad;
- Transfer of funds (including interest on loans) guaranteed by the Federal Government to a foreign related party (directly or indirectly connected group company, i.e. prohibited use of funds in a group cash-pool).
Considering the fact that “cash” cannot be tracked easily, companies with a respective COVID-19 loan in their balance sheet may be subject to the respective restrictions until repayment of the COVID-19 loan. Thus, the conditions tied to the government-guaranteed COVID-19 loans to prevent misuse may result in an inherent prohibition of any such transactions until the full repayment.
The misuse of funds and/or wrongful declaration of entitlement is subject to penalties imposed by the ordinance. The Swiss Federal Department of Finance considers to review the respective offence in line with the case law available in connection with tax avoidance and may seek fines up to CHF 100’000, respectively criminal charges carrying a sentence of maximum 5 years in prison.
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