In recent months, CFOrent has helped various start-ups and scale-ups request corona loans from the investment agency, PMV. In this series of blogs, we are sharing valuable insights into PMV and the corona loan.
(For general information about the corona loan, please visit the PMV website.)
How much are you eligible to borrow?
The amount you’re credited must cover your financing needs for at least 12 months. For a loan of 800,000 to 2.8 million euro, the maximum amount is 100% of the salary costs, or 12.5% of the turnover, depending on which is largest. For a loan of 800,000 euro, there are no limitations on the basis of salary costs or turnover.
Conditions for requesting a loan
You are only permitted to request the loan in one of these three scenarios:
- You are only permitted to request the corona loan if your company is not in difficulty. This mean that your own equity must be on a healthy level. There is still an exception made for fledgling companies. An SME that has been established for less than three years is only considered to be an ‘undertaking in difficulty’ if a collective insolvency procedure is running against it or if it can be subject to such a procedure. Together with you, CFOrent examines which qualifications or exceptions apply to your company.
- Only make an application for the loan if, at the beginning of the coronavirus crisis, you did not have any arrearson current loans, and were not behind on payments for taxes, VAT or social security.
- Of the total workforce that you employed at the end of 2019, a maximum of 20% may be temporarily unemployed. You either commit to returning to an effective employment rate of at least 80% of the total workforce in a very short time span, or you arrange for at least 50% of your temporarily unemployed staff members to return to work.
Incompatibility with other financing
PMV applies a number of extra conditions:
- A corona loan of more than 75,000 euro is incompatible with the nuisance premium, compensation premium, support premium and the subsidies of the New Flemish Protection Mechanism. You must pay back these premiums or subsidies if you would like to request the loan.
- The corona loan may be combined with any form of current financing, except financing provided by LRM.
- You pursue different corona loans, as long as the combined amounts do not exceed a total of 2.8 million euro.
- Start-ups and scale-ups may only combine the corona loan with other financing if they have the same modalities as the corona loan.
- SMEs and independents or self-employed persons may combine the corona loan with financing that has different modalities to the corona loan.
It is advisable to compare the various financing possibilities to each other so that you’re better able to make a well-considered choice for the most interesting option. CFOrent is happy to help you do this.
First things first: all stakeholders on board
The corona loan from PMV is not free money. For start-ups and scale-ups, this subordinated loan is convertible: PMV can convert the outstanding interest into shares at a subsequent capital round or exit, with a discount of 25% off the share price. It is likely that, sooner or later, the investment firm will come to hold shares in your company. Involve the most important shareholders for your company before you request the loan. Ask your board of directors and shareholders whether they agree. Your business can refuse the loan after PMV has authorised it, but this may inevitably damage PMV’s confidence in your business.
Impact on subsequent capital rounds
One capital round triggers the next. But are your shareholders ready to enter into Series B financing? Can you connect attractive conditions with the new shares? This is a conversation you will need to have as soon as possible. If your shareholders do not join you in a new capital round and see their interests diluted, they may decide to leave your company. This worst-case scenario may seriously damage a subsequent round and the associated value.
Also take into account that a loan is deducted from the enterprise value (the market value of your company) in a subsequent capital round.
In the next blog, you’ll learn how to prepare and submit your request.