SMEs with a government-backed loan (PGE) initially benefited from a one-year grace period before repayment began, which was extended to 2 years for companies in the greatest difficulty. At a time when the choice is between immediate or deferred repayment, which strategy will SMEs opt for?
State-guaranteed loans: towards staggered repayments
Granted for a period of 6 years, EMPs were initially repayable after a single year's deferral.
However, in the face of an ongoing health crisis, and following the announcement of the reconfinement at the end of October 2020, the French Minister of the Economy and Finance Bruno Le Maire had announced the possibility of a second year's deferment, for "companies that would not be able to start repaying their loan from 2021".
This facility, which had to be considered by banks on a case-by-case basis, is now granted automatically to companies under administrative closure.
However, the duration of the EMP has not been extended, and remains fixed at a maximum of 5 years once repayment has begun, which will not be without consequences for the cash flow of companies opting for a 2-year deferral. One year after the first EMPs were granted, the question of repayment strategy arises, and the choice is not an easy one.
EMP reimbursement: SME managers increasingly concerned
According to a recent survey, conducted between January 7 and 20, 2021, by the Confédération des petites et moyennes entreprises (CPME), business leaders' concerns about their repayment capabilities are growing month by month.
In December, almost one in two SME owners (45%) said they feared they would not be able to repay the loan, compared with only 34% in September. What's more, in September, 34% had opted for a one-year deferment of repayment, depending on the original conditions, compared with just 28% in December, even though the health situation had not yet worsened with the arrival of the many variants of the virus.
More and more SMEs are therefore opting for a second year's deferral, deciding not to repay their PGE until 2022. At the same time, new PGEs continue to be granted: in November and December, 40,000 new applications were submitted. Some of these were from companies that had not yet taken out an EMP, while others were requests for additional cash flow.
The longer the repayment deferral, the greater the risk of default. What might temporarily relieve SMEs in difficulty may also put them in difficulty when the time comes to repay, and consequently lead to losses for banks and the State.
The Ministry of the Economy and Finance is looking into the possibility of spreading the repayment period out further, to avoid excessive monthly payments for SMEs opting for a 2-year grace period.
"I will enter into discussions with the European Commission to study whether this deferral is feasible in certain specific sectors," said Bruno Le Maire recently, who even raised the possibility of transforming the EMP into a subsidy for certain companies.