Payment difficulties: COVID-19 and options for Dutch companies experiencing financial strains

Written on 26 Mar 2020

Government and financial sector initiatives can help Dutch businesses that are struggling to meet their payment obligations amid the coronavirus emergency.

This article was originally published on 26 March 2020 and updated on 30 March 2020

As more and more businesses in the Netherlands are caught up in the far-reaching consequences of the emergency response to the coronavirus pandemic – and not just those from sectors such as catering and tourism that were particularly vulnerable initially – many Dutch entrepreneurs could face difficulties meeting payment obligations.

Revenues are being lost due to a range of factors such as the absence of guests, decreasing orders by customers, delays or cancellation of projects, problems with the supply of raw materials, or by a drop in employee productivity due to lockdown measures.

Even if liquidity constraints are not raising immediate concerns, bank financing quarterly debt service periods often more or less coincide with the calendar year and this is also often the time when financial covenants are tested.

With declining revenues, rental income and possible value of, for example, real estate, some entrepreneurs may already get into trouble with these ratios under their bank loans by quarter end (although accompanying compliance certificates may only be due for the following 30-45 days).

There are a range of support initiatives from the Dutch government and financial sector, however, which can offer entrepreneurs a solution for the financial challenges they are facing in these difficult times.

Guarantee for SME loans

The extended guarantee for small and medium-sized enterprises (De verruimde borgstelling midden- en kleinbedrijf (BMKB)) has been opened up rapidly. This makes it easier for banks and allows them to extend credit faster. Under the normal scheme for governmental SME guarantees, the government can guarantee 50%. This is temporarily increased to 75% for loans up to €266,667. For loans exceeding this amount, it remains 50%.
The scheme will also be available for bridge loans and current account/overdraft facilities with a term of up to two years. The maximum of the BMKB credit has been temporarily increased from €1 million to €1.5 million. The entrepreneur always needs to provide a personal surety of 10% of the credit.

According to the website: "The scheme is effective from Monday, March 16, 2020 and is part of a previously announced package of measures by the government to mitigate the economic consequences of the corona virus. The government estimates that with this first step, €300 million in additional financing is immediately available for SMEs that are affected by the corona crisis."

The BMKB scheme had already been extended as of 1 January 2020 for SMEs affected by recent PFAS (poly- and perfluoroalkylic substances) and carbon emission measures. This applies for a year and was only available to companies that get at least 20% of their revenues from activities that are affected by PFAS and carbon emission measures.

Who can apply?

SMEs and smaller companies (more information here and here) with up to 250 employees (FTE) with an annual turnover of up to €50 million or a balance sheet total of up to €43 million.

Start-ups, companies focused on technological innovation or companies affected by the PFAS and carbon emission problems may receive additional support within the BMKB (more information).

Broadening of the Guarantee for Entrepreneur Financing

Businesses that experience problems in obtaining bank loans and bank guarantees can use the Guarantee Business Financing scheme (Garantie Ondernemersfinanciering-regeling) (GO). Under GO, the government was able to guarantee a maximum of 50% of a maximum loan of €50 million. In connection with the coronavirus, the government has increased the total guarantee amount from €400 million to €1.5 billion. The maximum amount per company has been temporarily increased to €150 million.

Who can apply?

SMEs and large companies (more information).

Microcreditprovider Qredits provides credit

Qredits can help companies by offering bridge loans and by temporarily postponing repayment and lowering interest for existing customers. Qredits is a non-profit ANBI foundation that helps entrepreneurs with financing up to €250,000.

Who can apply?

  • Current Qredits customers affected by the Corona crisis, Qredits grants a six-month grace period and an interest rate cut to 2%; and
  • Small entrepreneurs and freelancers who are not a customer and need a bridge loan (apply here).

Temporary guarantee for agricultural and horticultural companies

The government is working on an arrangement under which it can guarantee the credits of agricultural entrepreneurs (conditions and information). From 18 March 2020, an extra module has been added to the existing scheme so companies affected by the coronavirus can continue to be financed (more information on module).

Depending on the type of credit, the government guarantee will be 70% or 90% of a total loan of up to €1.2-2.5 million (depending on the purpose of the loan). Combinations are also possible. The affiliated banks are ABN AMRO Bank, Deutsche Bank, ING Bank, Rabobank, Triodos Bank and NIBC.

Who can apply?

The company must be an agricultural business getting the largest share of its turnover from primary agriculture (primaire landbouw) (vegetable products and livestock farming) and the company must be located in the Netherlands (and the majority of the business activities must be in the Netherlands as well).

Policy Dutch banks

On 19 March 2020, the Dutch Bank Association (Nederlandse Vereniging van Banken) (NVB) announced that ABN AMRO, ING, Rabobank, de Volksbank, Triodos Bank and BNG Bank had decided that smaller companies, which are at the core "healthy" enterprises, can get a six-month extension of repayments on their current credits. This is a minimum measure and banks will consider whether additional measures are appropriate on a case-by-case basis.

Who can apply?

  • Commercial clients with an existing financing up to €2,5 million.
Update 30 March:

  • ABN has announced that it will broaden the scope of measures to credits up to EUR 50 million (instead of EUR 2.5 million) for commercial credits (excluding real estate financings, leveraged sponsor deals as well as club/syndicate led financings) – meaning that during 6 months (April to September) no interest and amortisation needs to be paid - this will be done automatically. For real estate financings or financings exceeding EUR 50 million tailor made advice is necessary.
  • Rabobank announced that upon request commercial clients with loans up to EUR 3 million may have the benefit of an amortisation holiday of 6 months. Interest remains payable however. For amounts exceeding EUR 3 million, Rabobank will adopt a case by case approach.
  • ING Real Estate Finance, announced through the Dutch Vastgoedjournaal.nl website that ING offers their clients easements with regard to amortisation (not interest), also for credits exceeding EUR 2,5 million. Their real estate clients will receive a letter from ING shortly including more information on what ING can do to assist those clients. The easements will be for a period of 6 months and can be applied in consultation with ING (since if rent payments are made in advance – the cashflow problem will likely occur with a 3 month delay). ING therefore seems to be adopting a more case by case approach.
  • Volksbank (consisting of ASN Bank, BLG Wonen, RegioBank en SNS) – So far its seems that RegioBank and SNS go for a case by case only and can offer up to a 6 month interest/amortisation holiday. ASN Bank only refers to communications made by the Dutch chamber of commerce and Dutch Bank Association.
  • Triodos also refers to the general measures announced by the Dutch Bank Association, but in addition mentions that if those measures are not sufficient tailor made solutions can be discussed.

Other initiatives

Crowdfunding platform October held a vote among its investors to suspend repayments on existing loans by 3 months. This proposal was passed with 99.42% of the votes. Other crowdfunding platforms may develop similar initiatives.

Negotiations with financing parties

The end of the first quarter of the year is in sight. This means that a number of companies with existing financing will likely have to pay their interest (and scheduled principal repayments) on or about 31 March 2020. In the event of immediate liquidity problems, it is always advisable to contact the financing party (bank/investor) on short notice and take counsel advice in advance.

But, even if a borrower can still meet its payment obligations, it is possible that a borrower may be expected to breach the terms of its loan agreement. This is due to financial covenants that apply during the term of the loan We have included a number of covenants commonly seen in real estate and corporate finance markets below to indicate how those could be triggered:

  • Debt Coverage Ratio (DCR) of Debt Services Coverage Ratio (DSCR). This is the ratio between the net cash flow (rental or turnover) and the financing costs. This ratio may come under pressure in the event of declining rent/turnover.
  • Debt Yield. This is the ratio of net cash flow to total debt. This method is similar to a leverage ratio in financings determining the ratio of total (net) debt to EBITDA. These ratio's may come under pressure as a result of a decline in cash flow and/or EBITDA.
  • Loan to Value (LTV). This is the ratio of outstanding principal amounts to the secured collateral (such as real estate). If the value of real estate decreases (which is not unthinkable in this market), the LTV could come under pressure. We do not expect immediate haircuts in valuations but with valuations due for later this year an LTV-breach certainly is a possibility.

If the initiative does not come from the financier or if the measures taken by the government prove to be insufficient, it is often best to open discussions with the financing party at a point in time that a borrower can exercise a level of control over the outcome of such discussions. Even if the financial need is not that serious now, it may be advisable to conduct a legal analysis of the terms of the credit agreement. By carrying out such an analysis, potential bottlenecks can be identified in time.

If your current financing arrangements are maturing on the short term (for instance within the next 12-24 months), a borrower may consider to commence negotiations for a refinancing or amend and extend if there is a concern that margins will increase.