Sim­ple, fast and ef­fi­cient: Swiss COVID-19 bridg­ing cred­its for com­pa­nies in need

On 25 March 2020, the Fed­eral Coun­cil pre­sented an emer­gency re­lief scheme in­volv­ing guar­an­teed COVID bridg­ing loans to sup­port SMEs en­coun­ter­ing liq­uid­ity prob­lems due to the coro­n­avirus. The scheme was es­tab­lished in close co­op­er­a­tion with the Swiss banks. The gov­ern­ment-ac­cred­ited loan guar­an­tee or­gan­i­sa­tions en­able easy ac­cess to bank loans for SMEs (Find all in­for­ma­tion on the guar­an­teed COVID-19 bridg­ing loans pro­gramme on line). 

The loans were quickly brought to the com­pa­nies in need be­cause the fol­low­ing prin­ci­ples were ap­plied: (1) take a prag­matic ap­proach, (2) use es­tab­lished net­works, (3) im­ple­ment the ac­tion in a de­cen­tralised way and (4) in­sure com­pli­ance at a later stage to avoid back­logs in the de­ploy­ment of the pro­gramme. 

How the scheme works

Af­fected com­pa­nies can apply to their banks for bridg­ing credit fa­cil­i­ties rep­re­sent­ing a max­i­mum of 10% of their an­nual turnover and no more than CHF 20 mil­lion. In essence, the ap­pli­cants fill out a one-page form with read­ily avail­able in­for­ma­tion and iden­ti­fi­ca­tion. The ap­pli­cants must meet cer­tain min­i­mum cri­te­ria. In par­tic­u­lar, the com­pany must de­clare that it is suf­fer­ing sub­stan­tial re­duc­tions in turnover be­cause of the COVID-19 pan­demic. 

There are two credit fa­cil­i­ties avail­able: 

• COVID-19 cred­its up to CHF 500,000 are fully se­cured by the Con­fed­er­a­tion and are paid out quickly and with a min­i­mum of bu­reau­cracy. It takes 10 min­utes to fill out the credit ap­pli­ca­tion form, avail­able on­line (https://​www.​easygov.​swiss/easy­gov/#/en/land­ing/covid). The com­pany then signs the printed credit agree­ment and sends it on­line or by mail to its house bank which pays the money within a day after re­cep­tion of the agree­ment. For cred­its up to C500’000, Zero in­ter­est will be charged.
• COVID-19 plus cred­its ex­ceed CHF 500,000. They are se­cured by the Con­fed­er­a­tion to 85% of their value; the lend­ing bank se­cures the re­main­ing 15%. Each com­pany can ob­tain a credit of this type for up to CHF 20 mil­lion. A com­pany must first sub­mit a COVID-19 credit be­fore it can apply for a COVID-19 plus credit ex­ceed­ing 500,000 Swiss francs. How­ever, a more rig­or­ous bank re­view is re­quired, and the guar­an­tee­ing or­gan­i­sa­tion must issue a guar­an­tee be­fore the amount can be paid out by the lend­ing bank. The in­ter­est rate on these cred­its is 0.5% on the loan se­cured by the Con­fed­er­a­tion. Com­pa­nies with a turnover of more than CHF 500 mil­lion are not cov­ered by this pro­gramme.

Large banks pro­vide cred­its for small busi­nesses

The Fed­eral De­part­ment of Fi­nance de­vel­oped the emer­gency re­lief scheme in close co­op­er­a­tion with the bank­ing sec­tor thereby using es­tab­lished net­works for cri­sis sit­u­a­tions. 123 Swiss banks are lend­ing COVID-19 cred­its to SMEs in need. As many SMEs only have a bank ac­count with Post­Fi­nance, the fi­nan­cial ser­vices unit of Swiss Post was per­mit­ted to give COVID-19 cred­its to their clients as a tem­po­rary mea­sure, thus ap­ply­ing the prin­ci­ple of prag­ma­tism. 

By 24 June 2020, 128’517 com­pa­nies have re­ceived COVID-19 cred­its with a total amount of 13,300 Mio. Swiss francs. 729 COVID-19 plus credit ap­pli­ca­tions with a total amount of 2,030.5 Mio. Swiss francs have been sub­mit­ted so far. In a re­cently pub­lished analy­sis, Swiss­Bank­ing re­vealed that 47% of the credit vol­ume went to micro com­pa­nies (0 – 9 em­ploy­ees) and 35.7% to small com­pa­nies (10 – 49 em­ploy­ees). On the other side, the bulk of the cred­its was given by the two big Banks UBS and Credit Su­isse (38.9%) as well as the can­tonal banks (31,5%). It is a fine ex­am­ple how par­tic­u­larly large and fi­nan­cially sol­vent banks can help small busi­nesses to sur­vive dif­fi­cult times. 

Fraud is the ex­cep­tion

Al­though the pro­ce­dure for com­pa­nies to ob­tain a COVID-19 credit is ex­cep­tion­ally easy and fast, not many cases of fraud have been doc­u­mented so far. After hav­ing in­ves­ti­gated over 94,000 COVID-19 cred­its with a total vol­ume of 11.4 bil­lion Swiss francs, the Fed­eral Audit Of­fice (SFAO) has found in­di­ca­tions for pos­si­ble fraud in 400 cases cov­er­ing a credit vol­ume of 88 mil­lion Swiss francs. This is less than 1 per cent of the total credit vol­ume. For most cases it is about div­i­dends paid, dou­ble pay­ments and false state­ments on turnover. One of the rea­sons is cer­tainly, that in ap­ply­ing the prin­ci­ple of de­cen­tralised pro­ce­dures, the cred­its are given by the house bank of the com­pany which knows its clients well and can es­ti­mate the fraud risk more ac­cu­rately than a cen­tralised fed­eral ad­min­is­tra­tion. Com­pa­nies are also aware, that the ad­min­is­tra­tion and the banks have the nec­es­sary re­sources to per­se­cute pos­si­ble fraud­sters at a later stage. This helps keep­ing fraud to a min­i­mum. 

An emer­gency pro­gramme, not on long term as­sis­tant scheme 

COVID-19 cred­its are given with a pay­back pe­riod of five years. The in­ten­tion of the fed­eral gov­ern­ment and the banks was to pro­vide com­pa­nies in Switzer­land with liq­uid­ity im­me­di­ately and over a short pe­riod to help with the eco­nomic con­se­quences of the coro­n­avirus. The pro­gramme there­fore ends on 31st July 2020. How­ever, such a pro­gramme is not ad­e­quate for long term pur­poses. If the eco­nomic cri­sis is deeper and long term, au­to­matic macro­eco­nomic sta­bi­liz­ers (e.g. short-time work, un­em­ploy­ment ben­e­fits) and good po­lit­i­cal frame­work con­di­tions help the econ­omy to re­cover.