On April 4, 2020, Government Emergency Ordinance No. 42/2020 (“GEO 42/2020“) for the amendment and supplementation of the Government Emergency Ordinance No. 110/2017 (“GEO 110/2017“) regarding the Program for supporting small and medium-sized enterprise – SME INVEST ROMANIA, as well as for the approval of the State Aid scheme supporting the business of SMEs in the context of the economic crisis generated by the COVID-19 pandemic (“State Aid Scheme“) was published in the Romanian Official Gazette No. 283.
As a preliminary matter, the Program for supporting small and medium-sized enterprises – SME INVEST ROMANIA regulated by GEO 110/2017 provides the framework for guarantee facilities granted by the State for loans awarded to small and medium-sized enterprises by credit institutions and was recently amended by GEO No. 29/2020 regarding certain economic and tax measures (The implementation of economic measures in the context of COVID-19).
I. SMEs SUPPORT PROGRAM
1. Amendments of the amounts related to the financing guaranteed by the State
State guarantees shall be granted for the following loan categories:
(i) one or more loans for investment and/or one or more loans/credit lines for working capital, guaranteed by the State, through the Ministry of Public Finance, excluding interest, commissions and bank charges related to the guaranteed loan;
(ii) one or more loans/credit lines for financing working capital, excluding interest, fees and bank charges related to the guaranteed loan.
For the loans referred to under points (i) and (ii) above, the guarantee percentage and the threshold of the maximum aggregate amount of State-guaranteed financing that may be granted to a beneficiary under this facility remains the same, however pursuant to the amendment introduced by GEO 42/2020, they shall be granted within the limits of one of the following conditions applicable for both financings, whichever is the highest of:
- double of the amount of wage cost, including compulsory social security liabilities due by the employer in respect of salaries income and income similar to salaries recorded during 2019. The maximum amount of loan applicable for the enterprises incorporated after January 1, 2019 shall not exceed the estimated amount for the first 2 years of business; or
- 25% of the beneficiary’s net turnover related to 2019, respectively the gross income or annual income norm applicable to individuals earning income from independent activities, where appropriate, pursuant to the Single Return for income tax and social security liabilities payable by individuals, submitted with the competent tax bodies in respect of the year 2019; or
- an amount resulting from its liquidity necessities which may include both working capital and investment expenditure, provided that the beneficiary submits certain supporting documents, in which case the amount of the loan may not exceed the liquidity necessities applicable as of the date of the grant, for the next 18 months.
2. Amendments regarding the funding term
The maximum term of the financing for investment loans is shifted from 120 months to 72 months.
The term remains 36 months in case of loans/ lines of credit for working capital, with the possibility of prolongation by a maximum of 36 months.
3. Interest subsidy
As a result of the amendments introduced by GEO 42/2020, the Ministry of Public Finance shall 100% subsidize the interest on loans/lines of credit for the financing of working capital (eliminating the loans for investment) from the budget of the Ministry of Public Finance – General Actions. The subsidy is granted until December 31, 2020 (compared with the previous date of March 31, 2021).
4. Amendments regarding the eligibility criteria for accessing the program
Certain existing eligibility criteria are amended, namely:
(i) The reference date for the good standing criteria provided by art. 3 para. (1) letters c) and d) of GEO 110/2017 is amended as follows:
- Lack of outstanding loans, including for financing through leasing, shall refer to the last 6 months prior to December 31, 2019 (instead of the date of requesting the State guarantee, as previously provided);
- The requirement related to the lack of prohibition to issue checks shall refer to December 31, 2019 (instead of the date of loan approval, as previously provided) and the absence of major incidents in respect of promissory notes registered with the Payment Incidents Register database shall refer to the last 6 months prior to December 31, 2019.
(ii) With respect to the requirement provided under letter f) regarding collateral guarantees, GEO 42/2020 provides that a legal movable mortgage on the credit balances of all accounts opened by the beneficiary at the credit institution may be included in the structure of guarantees related to the loan, together with the State guarantee, in respect of loans/ credit lines for financing working capital.
A new requirement is introduced (article 3 para. (1) letter i) of GEO 110/2017), namely the requirement of submitting a document whereby the SME undertakes not to lay off existing personnel as of the date of entry into force of GEO 42/2020 (i.e., April 4, 2020) up until December 31, 2020. The enterprise may organize the work program of employees based on how matters develop in respect of its current activity.
5. Amendments regarding eligible economic sectors/ fields
As a novelty introduced by GEO 42/2020, SMEs operating in the fields of financial intermediation and insurance, real estate transactions and rental and leasing activities (which were excluded from the scope under the former regulation) are also now eligible to benefit from the State Aid Scheme.
6. Other important amendments
(a) Details regarding the risk premiums
GEO 42/2020 specifies that the payment obligation with respect to the risk premium is covered by the aid by means of grant received by the beneficiary under the State Aid Scheme (please see Section II, point 2 (b) for more details on the State Aid by way of grants).
GEO 42/2020 furthermore provides that following the effective termination of the State Aid Scheme, SMEs which undertook loans under the program shall owe the Ministry of Public Finance a risk premium. The amount of the risk premium shall be determined annually by Order of the Public Finances Ministry.
(b) Collateral guarantees
Pursuant to the new amendments introduced by GEO 42/2020, collateral guarantees established by the beneficiary of the financing/ third parties guarantors in favor of the financing credit institution and the Romanian State, through the Ministry of Public Finance, which are pro rata with the guarantee percentage, other than the State guarantee and the legal immovable and/or movable mortgage on the assets financed by loan, and which may be envisaged by the credit institutions in order to reduce their exposure to the debtor, may now also be personal.
II. STATE AID SCHEME FOR SUPPORTING SMEs BUSINESS
1. Beneficiaries
SMEs from all sectors of business may benefit from State Aid under the State Aid Scheme, except for those declared ineligible according to GEO 110/2017, respectively those operating in the following sectors/fields: gambling and betting activities, manufacturing or trading of weapons, ammunition, explosives, tobacco, alcohol, substances under national control, narcotic and psychotropic plants, substances and preparations, investigation and protection activities. Such SMEs must further fulfill the following eligibility requirements:
- they are micro-enterprises or SMEs and fulfil all the requirements set forth in art. 2 letter a) and art. 3 (1) of GEO 110/2017;
- no decisions have been issued against them to recover a State Aid or, where such decisions have been issued, such were already enforced pursuant to the legal provisions in force;
- they have not applied for other types of State Aid for the same eligible costs;
- they were not in difficulty[1] but faced difficulties or subsequently entered into difficulty following the COVID-19 pandemic;
- they file a written document undertaking not to lay off existing personnel commencing with the date of entry into force of this emergency ordinance and up until December 31, 2020.
2. Types of State Aid
Two types of State Aid are regulated:
(a) State Aid by way of loan guarantees
Such is granted in accordance with the provisions of GEO 110/2017.
(b) State Aid by way of grants
SMEs that have undertaken guaranteed loans/ lines of credit pursuant to GEO 110/2017 shall benefit from a grant within the amount resulting from the value of the risk premium and the management fee related to the granted guarantee and the interest related to the loans/lines of credit, within the limit of the equivalent in RON of EUR 800,000 per enterprise.
By way of exception:
(i) State Aid may be granted to SMEs which operate in the field of processing and trading agricultural goods, provided that the State Aid is not transferred in part or in full to primary producers and the amount of aid is not determined on the basis of price or quantity of goods purchased from primary producers or placed on the market by the relevant enterprises.
(ii) With respect to the agriculture, fishery and aquaculture sectors, the State Aid shall be applied under certain requirements and shall not exceed EUR 120,000 gross for each enterprise active in the fishery and aquaculture sectors, or EUR 100,000 gross for each enterprise active in the field of primary production of agricultural goods.
3. Validity period of the scheme
The validity period of the State Aid Scheme is until December 31, 2020, and the period during which the payment of the grant may be provided is limited to March 31, 2021, with the possibility of prolongation.
4. Budget and maximum guarantee threshold
State Aid by way of grant shall be borne from the State budget, through the budget of the Ministry of Public Finance – General Actions. The National Credit Guarantee Fund for Small and Medium Enterprises – S.A. – IFN (in Romanian, Fondul National de Garantare a Creditelor pentru Intreprinderile Mici si Mijlocii – S.A. – IFN) (”FNGCIMM”) shall manage such State Aid measures.
The State Aid scheme budget (including subsidized interest, commissions) amounts to EUR 161 million (RON 781 million).
The maximum guarantee threshold amounts to EUR 3.1 billion.
40,000 beneficiaries are estimated.
5. Means and requirements related to granting, monitoring and resolving applications for payment of State guarantees and grants
The means and requirements related to granting, monitoring and resolving applications for payment of State guarantees and grants under the State Aid Scheme by FNGCIMM to each beneficiary participating in SME INVEST ROMANIA shall be governed by the Methodological norms approved by Decision No. 282/2020 for the approval of the Methodological Norms for the implementation of Government Emergency Ordinance No. 110/2017 regarding the Program for supporting small and medium-sized enterprises – IMM INVEST ROMANIA (the “Norms“), in force as of April 8, 2020.
(a) Credit Institutions enrolled in the program
By April 16, credit institutions shall submit to FNGCIMM applications for enrolment in the program, as well as applications for the allotment of guarantee thresholds according to the estimated level of financing they will grant in 2020 under the SME INVEST ROMANIA Program and as well the total costs they will apply to financing under the program, within the limits provided by the Norms.
The Norms set forth a series of eligibility criteria for credit institutions providing guaranteed financing, as follows:
- they fall into the category of credit institutions, including their territorial units;
- they have a national and/or county level territorial coverage;
- they grant financing in RON for beneficiaries who meet the eligibility criteria;
- they expressly provide in the financing agreements the interest costs expressed in relation to ROBOR at 3 months and separately the costs related to the guaranteed financing included in the margin;
- they do not charge prepayment fees and do not include clauses in the financing agreements allowing the unilateral amendment of such;
- they grant financing for a maximum period of 72 months in case of investment loans, including the grace period and 36 months in case of loans/credit lines for working capital, with the possibility of prolonging credits/lines of credit for a maximum period of 36 months and rescheduling repayment at least during the last 12 months of prolongation.
(b) Enrolment of beneficiaries
Pursuant to the Norms, enrolment of beneficiaries in the program will be performed in several stages, namely:
1. The beneficiary will register via the online application available on www.imminvest.ro, attaching the following documents:
- affidavit regarding the identification as a SME, submitted and signed by the applicant no later than 30 calendar days prior to the date of submission of the guarantee request by the credit institution;
- affidavit ascertaining the fulfillment of the eligibility criteria, issued no later than 30 calendar days prior to the date of submission of the guarantee request by the credit institution,
- the agreement of the beneficiary for consultation of the database of the Ministry of Public Finance;
- with respect to individuals, the sole tax return regarding the income obtained in Romania, filed with the competent tax bodies for 2019;
- proof of payment of the risk premium.
2. FNGCIMM will provide the credit institution selected by the potential beneficiary with the data and registration documents, together with the agreement in principle regarding the eligibility of the beneficiary. The credit institution will further consider the application and internally adopt the decision to grant the investment loan/loan/credit line for working capital, including the value determination of the loan.
3. The credit institution shall transmit to FNGCIMM the request for granting the State guarantee. Within 5 business days, FNGCIMM shall forward the guarantee agreement and the financing agreement to the credit institution.
4. Within 10 business days as of their receipt, the credit institution and the beneficiary shall sign the guarantee agreement and the financing arrangement.
[1] For the purposes of article 2 (18) of the Commission Regulation (EU) No. 651/2014 of June 17, 2014, declaring certain categories of aid compatible with the internal market in application of articles 107 and 108 of the Treaty, as subsequently amended and supplemented by Regulation (EU) No. 1084/2017, as of December 31, 2019.
