Cheap borrowing from the Recovery Fund

Small and medium-sized businesses are increasingly interested in the Recovery Fund’s loans, which would allow them to cut their financial costs in half at a time when interest rates are rising. 

It is currently estimated that 35, or one-third, of the 106 contracts signed for Recovery Fund loans are for small and medium-sized enterprises.

The loan amounts are, of course, proportionally smaller because the investments are budgeted at a lower level.

According to Finance Ministry data, of the 381 investment projects submitted to banks and under consideration, with a total budget of 12.12 billion euros, 230 have been submitted by micro, small and medium-sized enterprises, with a total budget of €2.73 billion.

According to a bank source, the figures are expected to rise dramatically in the coming months, as there is already growing interest from this category of companies, which were initially wary, fearing that they would be unable to meet the bureaucratic and other obligations of these loans.

“Large companies know about the Recovery Fund, while small and medium-sized enterprises need guidance,” the source said, adding he expects a rise “with geometric progress.” The same source said the incentive given by the low cost of money is strong, especially for a small or medium-sized enterprise.

For a typical loan the bank’s interest rate is Euribor plus 3% – i.e. currently a total of 6%. For small and very small enterprises the interest rate of the Recovery Fund is 0.35%. Thus, for a small enterprise financing its investment with equal loans from the Recovery Fund and the bank, the average cost of borrowing is currently 3.17%, which amounts to almost half of what it would be if it borrowed the full amount from the bank. 

Thanks to the lower interest rate at which they borrow from the Recovery Fund, smaller firms almost equalize their average cost of borrowing with that of larger firms. A larger firm borrows from a bank at a rate of Euribor plus 1.5% – i.e. currently 4.5% – and from the Recovery Fund at 1%. Thus, its average interest rate, for equal loans from the two sources, is 2.75%. 

The Recovery Fund finances up to 50% of the investment. The investor’s own contribution must be at least 20% and the bank’s loan at least 30%. In practice, it is common for the Recovery Fund and the banks to provide 40% of the financing and for the investor to contribute 20%.