Spain approves €7billion aid for struggling businesses

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€7billion aid for SMEs

MADRID – The €7billion aid is part of a larger €11billion fund announced two weeks ago. The aim is to stimulate the economy and prevent a wave of corporate insolvencies as the Covid-19 crisis continues. 

On Friday (12th March), the Spanish government approved the €11billion economic relief package which includes €7billion in direct aid to businesses in trouble.

The extraordinary Cabinet meeting gave the greenlight to the three separate funds which make up the package. A €3 billion pool to restructure state-guaranteed loans, managed by the banking sector; a €1 billion reserve to recapitalise medium-sized companies, run by the state-owned financing company Cofides; and €7billion in non-refundable direct aid to self-employed workers and small and medium-sized enterprises (SMEs) affected by the coronavirus crisis.

The government ringfenced €2billion of the non-refundable aid for the Balearic Islands and Canary Islands. These two regions have been hard hit by the crisis. In the Balearics, gross domestic product (GDP) fell by 27% in 2020. In the Canary Islands it dropped by around 20%, according to Bank of Spain data.

Qualification criteria

To qualify, companies must prove revenues fell by at least 30% in 2020 compared to 2019. The grants must be used on fixed expenses or debt reduction. The government will target sectors most affected by the pandemic – hospitality, retail distribution and culture.

Self-employed workers may collect up to €3,000 or €4,000. The amount depends on whether they file taxes under the módulos system or not. Businesses may be eligible for up to €200,000, said Economy Minister Nadia Calviño.

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Avoiding ‘zombie companies’

There had been concern over the possibility of ‘zombie companies’ taking payments and then shutting down. This has been the case in other countries. However, international organisations said the risk of not providing direct assistance outstrips the risk of helping non-viable firms.

To reduce this risk, the aid comes with caveats. The business must remain open until at least June 2022, not raise company executives’ pay and other conditions. Recipients will have to be up to date with their tax filings. They also cannot operate in tax havens.

This will be the first instance of mass aid for businesses since Spain joined the European Union in the mid-1980s.

Stimulating the economy

The government hopes the package will stimulate the economy which is dealing with the third wave of the coronavirus pandemic. The International Monetary Fund (IMF), the European Commission, the European Central Bank and the Bank of Spain all warned for some time about the risk of a wave of corporate insolvencies once the government phases out existing programmes, including the job furlough scheme known as ERTE.

Spain is coming late to the party. With EU backing, Germany, France, Italy, United Kingdom and Portugal already have similar schemes in place.

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