State guaranteed loans in France improve access to credit for companies during the coronavirus crisis.
90% of the outstanding capital is covered by the guarantee.
French State guaranteed loans have unique conditions for the repayment schedule and interest rate of the loan.
The French state guarantee scheme ended as per June 30th 2022. October no longer distributes Covid-related SGLs as of that date.
What is a French State-guaranteed loan?
On March 2020, the French State announced an exceptional package of €300Bn state-guaranteed loans (“PGE") to support SMEs during the Covid-19 crisis and reduce the risk for lenders. Following the amendment voted at the end of April 2020, lending marketplaces such as October were eligible to participate to the French state-guaranteed loans scheme and offer state-guaranteed loans to eligible borrowers.
With a state guarantee, the government covers a part of the loss in case a loan defaults. In other words, if a company cannot repay the loan, the state will partially repay for the company (up to 90%). As such they make it safer for you, as a lender, to lend to an SME. However, these loans are not available anymore since June 30th 2022.
October is normally remunerated through project set-up fees and monthly fees, that are charged to companies that lend on the platform. October will granted State-guaranteed loans at cost price for borrowers. The interest rate paid by companies that borrowed on October remains totally dedicated to the remuneration of retail and institutional lenders. The interest rate will be lower, due to the state guarantee.
The repayment scheme of the French state-guaranteed loans
State-guaranteed loans are different from the standard loans published on October. The characteristics of these loans (duration, interest rate) have been set by the French government.
However, what made the state-guaranteed loan unique is that the borrower could decide to extend their loan after the first 12 months, with a higher interest rate. At the end of this period, the borrower has 5 options. Regardless of the option chosen by the borrower, the loan remains covered by a 90% state guarantee.
| Option 1 | Option 2 | Option 3 | Option 4 | Option 5 |
Businesses eligible | All | All | All | All | Facing serious financial difficulties and loan < €50,000 |
Capital repayments | All the capital is repaid on month 12 | No capital is repaid on month 12 | Part of the capital is repaid on month 12 | Additional 12-month capital deferral | Additional 18-month capital deferral |
Interest repayments | 2% repaid on month 12 | 2% repaid on month 12 | 2% interest repaid on month 12 + Increased interest rate during the extension (from 3.91% to 5.41%) | 2% interest repaid on month 12 + Increased interest rate during the deferral and amortisation period (from 3.91% to 5.41%) | 2% repaid on month 12 |
Amortisation period (extension) | No extension | 1 to 5 years | 1 to 5 years | 1 to 4 years | To be confirmed |
Amortisation method | Bullet | Monthly repayments of capital and interest | Monthly repayments of capital and interest | Monthly repayments of interest for another 12 months, followed by the amortisation period with monthly repayments of capital and interest. | Monthly repayments of interest for another 18 months, followed by monthly repayments of capital and interest. |
Guarantee coverage | 90% | 90% | 90% | 90% | 90% |
Creditors approval needed | No | No | No | Yes | Yes + approval of the Banque de France’s Mediation Services |
The interest rate applicable during the additional deferral period and the amortisation period is between 3.71% and 5.41% depending on the project rating:
How retail lenders could participate in these projects
We have answered a dozen questions that you could have, to help you understand how you can support businesses while benefiting from a guarantee.
Does the end of the state guarantee scheme impact my existing SGL loans? If you have invested in a state guaranteed loan, nothing will change. You will still receive repayments and if the projects defaults, the guarantee of 90% will be activated.
Does the guarantee cover the entire duration of the loan? Yes the loan is covered by the State guarantee for its entire duration. Only if the company goes bankrupt within the first 2 months after granting the loan, the guarantee will not apply.
What are the costs for lenders? There are no associated fees for lenders. It is the borrower who bears the cost of the guarantee.
What is the change in risk compensation for lenders? October’s non-guaranteed interest rate grid ranges from 2.5% to 9.9%, depending on the risk of the company. For all French State-guaranteed projects, to reflect the fact that 90% of the risk is covered, the Internal Return Rate (IRR) is lower. Its exact level will depend on how long, at the end of the first year, the borrower decides to keep the loan for.
As an example if the borrower is a B+ and decides to keep the loan for 2 years after the first year (total maturity 36 months), they will pay 4.31% for the last 24 months, which translates into an IRR of 3.15% to lenders over the full life of the loan.
Can all lenders lend to businesses that benefit from the State-guaranteed loan? All retail and institutional lenders can lend to State-guaranteed projects published on the platform, regardless of their country of residence.
How to distinguish a State-guaranteed project from a "classic" project? In the Project Description it will be indicated with the following sentence: "This project is covered by the French State Guarantee".
What is the risk if a company defaults? The State guarantee covers up to 90% of the capital. This means that if a company goes bankrupt and no longer pays its instalments, the State will reimburse lenders 90% of the remaining capital owed by the borrower. The risk of capital loss, apart from the risk of the French government defaulting, is therefore only on 10% of the capital. It is the lender who bears the risk, just as with a "classic" October loan. The platform does not under any circumstances substitute to the borrower's repayments.
When is the guarantee activated? The guarantee is activated once a judicial officer has issued a certificate of uncollectibility for the October lenders' debt.
Should you wish to find out more on the Borrower perspective you can read the FAQ.