Italian Government Covid-19 funding measures – what is available to Fintechs?

As a global firm we have been actively tracking and assessing the varied measures which have been made available by governments across the world to support corporates and businesses in response to the Covid-19 pandemic. Building on this work, this is the fifth in a series of posts focused on key Fintech jurisdictions: assessing what funding measures could be available specifically to Fintechs in Italy (from fully licenced digital banks, to payment providers to tech start-ups). 

Approach taken in Italy

Whilst there are no Italian Government funding measures directly addressed to fintech companies, we note that they may benefit from a range of liquidity support measures tailored to SMEs and even from those targeting larger companies, where they exceed the relevant thresholds:

Central Guarantee Fund for Small and Medium-sized Enterprises (SMEs)

The Central Guarantee Fund for SMEs (CGF), derogating from its current legislative framework, will offer loan and portfolio guarantees on more favourable terms to SMEs and mid-caps until 31 December 2020. In particular, loan guarantees are available on the following terms: 

  • the granting of the guarantee is free of charge;
  • the maximum guaranteed amount per company is increased to €5 million;
  • the guarantee coverage percentages are increased (and are equal to 100% for loans to SMEs falling due between 24 and 72 months and amounting up to €25,000 or 25% of the borrower’s income, if lower);
  • the guarantee applies also to renegotiated loans (subject to conditions);
  • in the event of suspension of payment of the loan instalments or extension of the maturity of the loan by the bank, the existing guarantees of the CGF are automatically extended;
  • the borrowers’ eligibility conditions are relaxed (also with respect to start-ups);
  • the fee for the non-completion of the transaction is removed; 
  • the share of the junior tranche of specific loan portfolios guaranteed by the CFG may be increased; and
  • priority is given to SMEs, including those in the agri-food sector, with registered office or local units located in the territories of the municipalities most affected by Covid-19 identified in Annex 1 of the Decree of the President of the Council of Ministers of 1 March 2020.

Borrowers who before 31 January 2020 had unlikely to pay, past-due or overdrawn exposures – and in any case borrowers who have bad loans - cannot benefit from the CGF measure, while borrowers admitted to certain reorganisation plans or restructuring arrangements after 31 December 2019 are eligible, provided that certain conditions are met.

Loan portfolios guarantees have also been enhanced with similar measures.

SACE guarantees

SMEs which have already made full use of their access capacity to the CGF can apply through the lender for a loan backed by SACE’s guarantee under the Counter-Guarantee Mechanism by SACE and the State, which reserves at least €30 billion (out of €200 billion) for SMEs. The measure encourages banks to provide liquidity to Italian enterprises affected by Covid-19 epidemic by enabling SACE to issue irrevocable first-demand guarantees in favour of banks and other financial institutions which grant loans to Italian companies. SACE’s obligations under the guarantee will be backed by an irrevocable first-demand State guarantee.

SMEs, as well as larger corporates, may access the guarantee scheme provided that on 31 December 2019 they did not meet the European definition of “undertakings in difficulty” and on 29 February 2020 their financial exposures were not classified as “NPEs” (“non-performing exposures”) as defined under European law.

Please note that there is a detailed set of conditions the borrower has to comply with in order to benefit from the SACE guarantee (e.g., loans backed by the SACE guarantees shall be applied to finance costs of personnel, investments and working capital needs in respect of productive plants and businesses located in Italy; the borrower, as well as any other entity of the group incorporated in Italy, shall commit not to authorise dividend distributions or the purchase of treasury shares during the calendar year 2020, etc.). 

Moratorium of loans with a partial government guarantee

Micro-enterprises and SMEs based in Italy which have suffered liquidity shortages as a consequence of Covid-19 and whose financial exposures are not classified as “NPEs” on 17 March 2020 may request a moratorium on specified loan payments and credit lines which will last until 30 September 2020.

Financial institutions which granted the loans/credit lines covered by the moratorium shall be eligible for a government fund guarantee equal to 33% of the relevant amount (which would depend on the type of financing).

Liquidity support by CDP and the Italian government

CDP (Cassa Depositi e Prestiti) will guarantee loans by banks (and other entities authorised to carry out lending activity in Italy), to facilitate market liquidity. In particular, the measure:

  • supports bank financing to companies (including companies which are not considered to be SMEs such as medium-large corporates) that have suffered a drop in turnover due to Covid-19; and
  • operates by (a) the CDP providing specific instruments such as funding and/or portfolio guarantees, including first loss guarantees to the lending banks and (b) the Italian government then granting counter-guarantees up to 80% of CDP's exposures.

However, this measure still needs to be implemented by way of Decree of the Ministry of Economy and Finance. In the meanwhile, CDP will provide interim relief to enterprises through direct liquidity support up to €2 billion. In particular, the stop-gap support measure:

  • is intended to support temporary liquidity needs, working capital and investments envisaged in companies' development plans;
  • applies to medium and large enterprises with a turnover above €50 million that have suffered at least a 10% reduction in turnover as a result of the impact of Covid-19, compared to the corresponding period of the previous year; and
  • may also take place in pooling with financial institutions, with a CDP share amounting between €5 million and €50 million and lasting up to 18 months.  
Measures for export credit activities and the internationalisation

SACE will issue guarantees in favour of banks, local and international financing institutions and other entities licensed to carry out lending activity in Italy, in connection with financing to Italian companies and up to an overall maximum amount of €200 billion. The guarantees are issued at market conditions and in accordance with the applicable European legislation and will have the benefit of a first demand guarantee from the State. The measure will be operational following the issuance of the implementing Ministerial Decree.

In addition to this measure, commencing from 1st January 2021, the existing framework for the operation of SACE will be modified. The commitments arising from insurance policies and guarantees for principal and interest in relation to non-market risks shall be assumed through a system of cover jointly provided by SACE and the State: in an amount equal to 10% by SACE and for the remaining 90% by the Italian State.

Read more: Navigating through Covid-19 - Public support schemes for small and medium-sized enterprises.