Questions and misunderstandings about the “free loan” announced by Viktor Orbán

the Viktor Orban In connection with the interest-free business loan of up to HUF 10 million announced by the Prime Minister, a number of questions and misunderstandings arose, which Bankmonitor.hu experts try to answer and clarify.

This is how the new business loan announced by the Prime Minister at the opening of the fiscal year of the Chamber of Industry is known:

• aims to help startups,
• the amount is a maximum of 10 million HUF,
• the term is maximum of 10 years,
• without interest,
• companies do not have to repay in the first 3 years (automatic repayment moratorium).
• The MFB is expected to coordinate the program, which can be requested at MFB outlets operating in commercial banks.

Mihály varga The finance minister revealed more details in his Facebook post on Saturday, which we know the program already has a name for: an interest-free quick reset loan. It is aimed at small and medium-sized businesses so that they too can get involved in revitalizing the economy after opening, creating new jobs with the help of the loan. The total loan amount is HUF 100 billion, and the government has already decided that the loaned amount can also be used by companies for salaries, contributions, overhead, operating costs, and inventory financing. However, a number of issues remain unclear, although it will depend on them who can access preferential financing and under what conditions.

According to Bankmonitor.hu, these are the most important issues that need to be clarified:

1. What income and income will the bank seek in a business that has lost some or all of its income due to the epidemic? And, in principle, it may be for them that credit is a lifesaver to restart. One solution could be to use 2019 income as a base.
2. Many corporate loans require the participation of a real estate guarantee. If this is the case here, how can small businesses that do not have their own real estate, or if there is, cannot carry another loan?
3. The question may arise whether businesses will use the new interest-free loan to replace their existing credit, which has just come out of the moratorium. This sounds good, since you can hardly get more favorable financing with an interest-free loan and you do not have to pay it back for 3 years. However, the question is how this fits in with the government’s goal of helping businesses restart.
4. It has been suggested in the articles that the new business loan may be an alternative to the loan waiting for a baby or the chocolate loan that helps to create a home, because, for example, sole proprietors find it more difficult to obtain loans retailers. This is hard to imagine because a business loan cannot be used to purchase private real estate. By the way, this also would not fulfill the purpose of the loan declared by Viktor Orbán, to support the restart.
5. Many may be interested in knowing if there will be a fixed loan goal or if the loan will be freely available. It seems logical to have a credit goal, and if you have one, it should probably be backed by bills. (In this case, the aforementioned entry from the Minister of Finance already provides some guidance.)
6. How is it necessary to repay the loan? In many corporate loan schemes, interest must be paid only monthly or quarterly (this is not the case here), while principal must only be paid off at loan maturity.
7. What will happen to startups? Many business loans that these companies cannot obtain because they cannot meet bank expectations. According to Bankmonitor experts, new companies are not expected to be able to access this loan, as the “restart” assumes that the business has been operating before.
8. Other fees and costs related to loans may also be relevant. These elements can also affect how much a smaller business can afford to choose this design.
9. Many people ask the credit experts at Bankmonitor.hu if all small businesses will be able to count on the new loan without interest or if there will be a specific circle. There is no information yet, but it is very likely that companies in the sectors most affected by the coronavirus epidemic, such as hospitality, tourism or event management, can access credit without interest.