Switzerland has unveiled its “Covid-19 refinancing facility” (CRF), designed to provide cash-strapped companies with emergency loans to get through the coronavirus crisis. Loans of up to CHF500,000 ($510,000) will be interest free while firms will pay 0.5% on larger loans of up to CHF20 million.
The facility will be up and running on Thursday, allowing companies to get access to cheap money to pay their immediate bills. All non-essential high street shops and services have been told to close their doors while some manufacturing activities have also been affected by the pandemic.
Economists are warning of an inevitable recession as a result of the extraordinary measures.
Last week, the government increased its emergency funding from CHF10 billion to CHF42 billion. Some CHF14 billion will pay the wages of employees on short-time work, with CHF20 billion being offered as guaranteed loans and more funds targeted at specific industries.
The Swiss state will guarantee the entirety of loans of up to CHF500,000 and 85% of larger amounts, with commercial banks taking up the remaining 15% of risk. The Swiss National Bank (SNB) will provide the cash that can be accessed by companies via an online application processexternal link.
“Affected companies can apply to their banks for bridging credit facilities representing a maximum of 10% of their annual turnover and no more than CHF20 million,” the government statedexternal link. “Certain minimum criteria must be met. In particular, the company must declare that it is suffering substantial reductions in turnover because of the Covid-19 pandemic.”
The Swiss Business Federation welcomed the establishment of the loan facility, saying it would “prevent a negative chain reaction” of companies going bust.
Credit Suisse issued a statement saying it "does not want to earn income from this program. However, if this should be the case, we will donate any net profit generated to projects to support Swiss companies that are facing difficulties."
Abuse will be punished
On Wednesday, Finance Minister Ueli Maurer said he was confident that company owners would not abuse the cheap loan facility. But he warned of possible CHF100,000 fines for anyone who takes unfair advantage of the offer.
Maurer also said that further financial support will be contemplated for larger companies.
The SNB has also recommended a temporary suspension of the countercyclical capital bufferexternal link that forces banks to set aside billions of francs against possible mortgage loan defaults. This is to allow banks to free up more capital to issue to the economy.
Credit Suisse bank issued a report on Wednesday that concluded that the “coronavirus crisis will not bring the Swiss property market to its knees”. This is largely because the government has vowed to cover a large portion of lost household earnings from the pandemic crisis.
“While there will certainly be some damage, it will largely be confined to the commercial real estate segments, especially the market for retail space and the hotel industry,” the report stated.