State guaranteed loans in The Netherlands improve access to credit for companies during the coronavirus crisis.
Approximately 65% of the outstanding capital is covered by the guarantee.
In The Netherlands, the Dutch government helps SMEs during the coronavirus crisis by providing state guarantees. Under the Government Guarantee Scheme (BMKB-C), the Dutch government provides a partial guarantee for loans to companies that need capital in this crisis. October has recently been admitted to the list of financial institutions that can grant a loan under this guarantee scheme.
What is the Dutch State Guarantee?
It goes without saying that the coronavirus crisis has created a high level of economic uncertainty. As a result, lenders in general are less willing to provide credit. SMEs still need credit, sometimes for growth, more often in today's environment to continue paying bills and salaries, while their income is (temporarily) dropping.
In fear of a credit crunch and eventually the bankruptcy of SMEs, governments are reducing the risk for lenders with state guarantees. 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. As such they make it safer for you, as a lender, to lend to an SME.
With the current facility by the Dutch government approximately 65% of your outstanding amount will be covered at any time.
Calculation of the guarantee: The Dutch state guarantees 75% of a loan. When a loan defaults, 90% of the losses are covered, so 75% * 90% = 67.5%. However, the guarantee assumes a linear capital repayment, whereas loans on October are repaid through annuities. In annuities, capital repayments are relatively small at the start and become larger towards the maturity of a loan. As a result the guarantee won't cover 67.5% of the loan, but approximately 65%.
Below there's an example of a guaranteed loan of €100,000 with a duration of 24 months. The BMKB-C guarantee facility covers loans up to 2 million euro with a maximum duration of 48 months.
What companies are eligible to a Dutch State Guarantee?
The BMKB-C guarantee is only available to Dutch SMEs that are fundamentally healthy (i.e. profitable over 2019) and have or expect a liquidity need as a result of the corona-crisis. This has to be reflected in, for example, a decrease in turnover or a cancellation of orders. The guarantee is applicable only after the company has made use of other government Covid-19 measures, such as employee salary support. The guarantee covers new money only, hence the loan cannot be used to refinance existing loans.
Our goal is to help companies in their financing needs, while protecting the returns of our lenders. Therefore, we will only finance companies that were profitable in 2019 and experience a temporary setback due to coronavirus crisis.
To align the interests, the owner of the company has to give a personal guarantee.
When can the guarantee be called?
The state guarantee does not secure the continuance of a business. The business is merely provided with extra credit, to support the company during the coronavirus crisis. Nonetheless, no one can predict how the company will come out. In other words, your loan can default.
When there is no possibility of recovery, it is at the discretion of October to call the guarantee. It is very important to understand that the guarantee does not make a loan risk free. In case the loan defaults, you can lose up to approximately 35% of your outstanding capital in the project. The process towards the pay out of the guarantee can be a lengthy process.
It is not ensured that the guarantee will be enforceable in case the loan defaults. The government checks whether the conditions of the guarantee were met after October calls the guarantee. In case the conditions of the guarantee were not met at the time the loan was granted, you may lose up to 100% of your outstanding capital.
How to invest
You can lend to state covered loans as to any other project on the platform. When a guarantee is granted, it will be displayed on the project description.
Currently we make a distinction between 2 types of projects with a Dutch state Guarantee: Fast track projects and standard projects.
For projects below €200,000, we have introduced a standardised fast track product, based on the Dutch state guarantee: Corona snelkrediet (in Dutch). In the fast track we perform a standardised credit analysis, using our semi-automated scoring model, to assess the continuity of the company and provide a credit decision within 24 hours. The credit analysis has been adapted to the current economic situation and the additional risk is reflected in the interest rate. Projects that fall outside the boundaries of the fast track go through our normal credit analysis.
In the table below we compare the characteristics between the 2 types of projects:
Up to €200,000
From €200,000 up to €2,000,000
B or C
From A+ to C
7% for B score and 8% for C score
From 2.5% to 9.9% depending on credit score
24 or 48 months
From 24 till 48 months
6 months or 12 months for heavily hit sectors
Aligned with borrower
Early repayment fee
0% after 9 months
0% after 9 months
Time in business
Minimum 5 years
Minimum 3 years
Documents for analysis
In the project description it will be indicated what kind of Dutch state guaranteed project it is. The fast track projects are standardized and contain less information than other projects.