Spain to extend loan scheme for struggling firms until June, sources say

The grace period on a significant volume of loans ends in April, and many small businesses fear they will not be able to cope with their payments that soon. The first line of 100 billion euros approved in March guaranteed credits for five years, while the second 40-billion batch approved in July backs the loans for eight years.

The Spanish government is set to extend the availability of state-backed credit lines by six months until June, while also lengthening loan maturities and grace periods on loans under the scheme, three sources with knowledge of the matter said. Separately on Monday, Bank of Spain Governor Pablo Hernandez de Cos called for an extension of such support instruments to avoid a credit crunch as the second wave of COVID-19 infections threatened the recovery.

"It is important that once again all those levers that have served to avoid a credit crunch in the first wave ... such as the extension of the credit lines, are brought back to the table as soon as possible to ensure that in that second wave we avoid that credit crunch," De Cos told a financial event. Guarantees on all lines, designed to help companies amid the coronavirus-induced economic crisis, would be extended to up to eight years from the originally planned five on most loans, one source said, adding that the cabinet was likely to approve the measures on Tuesday.

With nearly 1.5 million cases and 40,769 deaths from COVID-19, and an economy that relies heavily on tourism, Spain has been one of the hardest-hit countries in Europe. Sources also said that an extra year would be added to the grace periods, which allow borrowers to delay payment without being charged late fees, being found in default or having their loans cancelled.

The Economy Ministry declined to comment. Companies were given until December to apply for the existing state-guaranteed funding scheme of 140 billion euros ($166 billion). The grace period on a significant volume of loans ends in April, and many small businesses fear they will not be able to cope with their payments that soon.

The first line of 100 billion euros approved in March guaranteed credits for five years, while the second 40-billion batch approved in July backs the loans for eight years. ($1 = 0.8447 euros)

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