The Court of Auditors considers that the loans guaranteed by the state have fulfilled their mission

State-guaranteed loans, or PGEs, did the job. This is essentially what the Court of Auditors states in one of its public policy evaluation reports, published at the end of July. A flagship measure to support French companies implemented by the first sanitary confinement in March 2020 in the face of the turmoil of Covid, these loans have often been welcomed but also criticized by economic actors.

On the one hand, the device would have had the merit of bringing a wave of money to companies already in difficulty, or at least cautious about the evolution of their business; on the other hand, it represents further indebtedness for its beneficiaries, and its repayment has raised many fears for the profitability of companies. The Elders of rue Cambon then explored the topic.

Granted until June 30, 2022, PGEs were guaranteed by the state between 70 and 90% and had a ceiling of 25% of annual turnover (or two years of collective salary for new companies). The vast majority of the loans were granted during the first confinement: out of a total outstanding amount of 137 billion euros granted by banks as at 31 December 2021, more than 70% were issued between March and June 2020.

Failures avoided

According to the Court of Auditors, the results of this public policy are therefore quite satisfactory. Distributed massively and quickly, the system appealed to both large groups and smaller companies. “The system was particularly requested by very small companies, which benefited from almost 88% of loans as of December 31, 2021 (36.7% by amount)”the report says.

Their distribution was carried out by banking institutions “in good financial health” who has offered a product “simple and easy to understand”. The system would also prove to be particularly advantageous “for companies in terms of cost, with a rate including the guarantee premium of 0.25% in the first year and 1% to 2.5% in subsequent years”.

In the end, the PGE refusal rate stabilized at around 3%, knowing that about two thirds of these refusals led to an appeal to the Credit Mediator, “whose intervention led to the granting of a loan in half of the cases”. The offer of bank credit was thus sustained and companies were able to find an answer to their liquidity needs, thus avoiding “massive failures”.

Also according to the analysis of rue Cambon, the device would have done it “effectively allowed to support vital businesses affected by the crisis”. The famous zombie companies, suspected for their part of having been artificially kept alive with aid, would have represented less than 2.5% of the total number of companies.

No improvement in late payment for large groups

Repayment difficulties are considered as “relatively limited”, thanks to the level of underwriting and the choice of loan amortization, in phase with the financial health of companies. However, the Napoleonic institute does not exclude every danger: the good performance of repayments will depend on the evolution of the economic context and on the effectiveness of the support instruments since the end of the crisis.

“The companies considered most at risk by the Court will have to allocate more than 9% of the monthly turnover to the repayment of the debts of the PGE and the USSR (Union for the recovery of social security contributions) and individual entrepreneurs (3% of the PGE in amount, but the 19% of beneficiaries) appears particularly vulnerable “we can still read.

Furthermore, the risks seem to have been well shared between companies, banks and the state. It is obviously the public authorities that have taken a larger share than the other two, due to the exceptional nature of the pandemic.

For the rest, “PGE parameters have been quite advantageous for companies, especially the smallest ones, and reassuring for banks in a context of low interest rates”. However, the Elders underline a lack of control over the commitments of large groups and believe that the PGEs granted to them have not made it possible to improve their late payments, which then affect all the players in the supply chain.

Monitor company cash flow in real time

Finally, do not worry about possible fraud and the cost to public finances: “The cost of PGEs for the State should remain low (less than 3 billion euros), which have made it possible to support about 700 thousand companies for almost 140 billion euros”specifies the Court of Auditors.

In order to avoid future abuses in spite of everything, he recommends in particular to carry out a thorough check of PGE beneficiaries who have ceased their activity at the time of signing the loan, or even to institute real-time monitoring of the situation of the corporate bank accounts to improve the knowledge of their cash flow.

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