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Law360, London (April 6, 2020, 7:07 PM BST) -- The European Commission on Monday announced a program using special guarantees to encourage banks to provide €8 billion ($8.5 billion) in emergency loans to help small and mid-size businesses cope with the economic impact of the coronavirus pandemic.
The commission said it had set aside €1 billion from its budget to be available to lenders as guarantees against loans to 100,000 businesses struggling under government lockdowns and travel restrictions.
Valdis Dombrovskis, the commission's executive vice president, said the loans would be available to "those most hard hit by the crisis."
"Across Europe, our businesses are struggling," he said. "The EU is responding quickly to help cushion the blow and to help small and medium-sized companies, which are especially vulnerable."
The €1 billion will come from the European Fund for Strategic Investments, which ordinarily provides funding to small to mid-size enterprises across Europe. The money will be used by the European Investment Fund, part of the European Investment Bank Group, to directly provide guarantees for banks.
The EIF will guarantee 80% of the value of loans. It will also encourage banks to allow for more flexible terms, including postponement, rescheduling and payment holidays.
The commission said the initiative meant money had already started to "flow" from the start of April.
EIF Chief Executive Alain Godard said further measures are planned to aid small businesses.
"In times of unprecedented crisis it is essential that SMEs receive the support they need," he said. "While this is an important first step, the EIB Group will continue to work on finding additional solutions to quickly meet the financing needs of entrepreneurs across Europe."
The plan follows similar measures taken by governments across Europe, with the U.K. Treasury last month launching a £330 billion bank guarantee program.
--Editing by Marygrace Murphy.
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