Wave of insolvencies looming!

Companies often unable to repay Covid loans

Because many loans cannot be repaid, experts fear that up to 10,000 companies will go bankrupt this year.

(Bild: stock.adobe.com)

Austria's small and medium-sized enterprises continue to struggle with the consequences of the pandemic. According to a survey by the Finanzombudsteam, 86% of companies that needed a coronavirus loan from Austria Wirtschaftsservice (AWS) or Österreichische Hotel- und Tourismusbank (ÖHT) have not yet repaid it.

Almost half of small and medium-sized enterprises (43 percent) even state that they are unlikely to be able to service the coronavirus aid in full. If the repayment conditions for the state-guaranteed aid are not relaxed, financial ombudsman Gerald Zmuegg fears that the 6,200 company bankruptcies expected for this year will be significantly exceeded.

"Up to 300 million euros in AWS loans at acute risk of default"
The expert warns: "Up to 300 million euros in state-guaranteed AWS loans - the total volume amounts to 3.353 billion euros - are at acute risk of default! The wave of insolvencies could therefore build up much higher than forecast by the Kreditschutzverband." In the worst-case scenario, he expects up to 10,000 company bankruptcies this year.

Financial Ombudsman Gerald Zmuegg: "The development is shocking. We have been pointing out to the Ministry of Finance since the end of 2020 that the terms of these loans are too short."

(Bild: krone.tv)

In a study of 978 small and medium-sized enterprises listed in the transparency database for coronavirus aid payments, their financial situation was examined from July 7 to 24. A total of 758 of the companies surveyed stated that they had taken out a loan as a result of the coronavirus measures since April 1, 2020.

86% of companies have not been able to repay loans to date
Around three quarters of the companies surveyed have taken out a state-guaranteed loan via AWS or ÖHT. A quarter were forced to take out additional loans without guarantees. Restructuring and credit expert Zmuegg: "At 86%, the majority of the companies surveyed stated that they had not yet repaid their coronavirus loan."

Review of possible consulting errors recommended
He recommends that companies that are already struggling with repayment problems or are undergoing restructuring should check for possible advisory errors, both against their bank and the funding agency. Other options include trying to extend the loan with the bank without collateral, checking claims against the state or suing for partial reversal in order to obtain an extension.

According to restructuring and credit expert Zmuegg, "companies will be driven into bankruptcy that basically had a functioning business concept and a healthy financing structure before coronavirus."

(Bild: Christoph Hardt)

"The development is shocking," explains Zmuegg. "We have been pointing out to the Ministry of Finance since the end of 2020 that the terms of these loans are too short. Unfortunately, our warnings were not taken seriously. It should have been clear when the loans were granted that the specified maximum terms were not realistic. The shorter the time to maturity, the higher the defaults. Most of the AWS loans expire on December 31, 2024, ÖHT loans in 2025. The closer to the end of the term, the higher the defaults will be."

Financial ombudsman team assists 200 affected companies
The financial ombudsman team is currently conducting out-of-court discussions for around 200 affected companies or is assisting them in documenting the banks' advisory errors in court proceedings. Zmuegg: "The cynical thing about the situation is that companies are being driven into bankruptcy that basically had a functioning business concept and a healthy financing structure due to the course of business before coronavirus. Now they basically just need more time."