COVID-19 Newsroom

Financing opportunities for mid-cap companies during the Covid-19 crisis

The Finnish government has recently increased business financing in order to ensure that companies may continue to operate profitably during and after the current Covid-19 crisis. At the date of this legal update, companies may, in addition to their own banks, apply for financing from the following institutions, depending on the type and size of the relevant company:

• Private/Sole traders – Municipalities
• Small companies (1-5 employees) – Finnvera and ELY Centres
• SMEs (6-250 employees) – Finnvera, Business Finland and Tesi
• Mid-cap companies (annual turnover max EUR 300,000,000) – Finnvera, Business Finland and Tesi
• Large companies – Finnvera

This legal update will focus on mid-cap companies and, therefore, will only provide further information on the financing provided by Business Finland, Finnvera and Tesi. Kindly note that the below may be subject to changes.

1. Business Finland: grants and loans

Business Finland currently offers two types of funding for mid-cap companies the business of which is negatively affected by the Covid-19 crisis: i) preliminary funding (maximum grant of EUR 10,000) and ii) development funding (maximum grant of EUR 100,000). These grants do not have to be paid back.

Preliminary funding may be used to investigate and plan new business, alternative subcontracting chains, and ways to organize production. Development funding may be used to carry out development measures in order to improve the company’s potential for success, and these measures are solely intended for creating new product- or production-related solutions.

The funding may not be used for e.g. the technical setting up of e-commerce, marketing expenses, cash flow shortages and operational salary costs, straightforward implementation of existing activities, costs of operational production and offsetting losses caused by business disruptions. Further, the funding may not be available if the company has exceeded its quota for de minimis aid (maximum EUR 200,000 over the current and two previous tax years).

As of the end of April/beginning of May 2020, mid-cap companies may also apply for research, development and innovation loans (Fi: TKI-laina). The loan is intended especially for labor-intensive sectors the business of which has been affected by Covid-19. There are no industry restrictions and limited liability companies of all sizes can apply for such loan. As a rule, the loan will not be granted to a company that is already running an innovation project funded by Business Finland. The minimum size of the project to be funded will be EUR 150,000, and the loan amount will be 70% of the total project costs. The company must also be able credibly to demonstrate its contribution to the project.

2. Finnvera: guarantees

Finnvera offers Finnvera Guarantees that may be used for working capital needs of mid-cap companies caused by Covid-19. Generally, Finnvera also provides loans but does not handle direct loan applications at the moment. Companies which have already received guarantees or direct loans from Finnvera may apply for an instalment-free period. The instalment free period is six months for guarantees and twelve months for loans. During the instalment-free period only interest and expenses are payable.

Finnvera has recently implemented a simplified procedure to deal with applications and to validate guarantees for a EUR 150,000-1,000,000 corporate debt bond granted by a bank and in which Finnvera’s guarantee coverage has been raised to 80% with no required collateral. The applicable guarantee commission is 1.75 % p.a., and the service fee amounts to some EUR 400. The guarantee amount may also be greater, but a normal procedure will then apply.

3. Tesi: equity investments and convertible bonds

State-owned private equity company Tesi (Fi: Suomen Teollisuussijoitus) has launched a temporary financing program on 14 April 2020. The aim of the program is to prevent bankruptcies among viable businesses due to the Covid-19 crisis. The size of the financings will vary between EUR 1 and 10 million, and the financings will be made through equity investments or convertible bonds.

To qualify for the investment a company must (i) have a turnover exceeding EUR 10 million, (ii) have at least 50 employees, and (iii) have been a commercially viable business before the crisis (and the means for commercial viability must remain). The employment impact and turnover should to a significant extent be within, or derive from, Finland. Tesi will rank the applications based on the degree of urgency, taking into account the company’s size and amount of funds.

As regards the equity investments, the terms of investment will be negotiated on a company-by-company basis. Under the financing program, the equity investments will be made together with other investors. Tesi’s share of investments may increase up to 70% if new investors participate in the investment round. Further, if the investments are made jointly with the existing owners, the maximum is 50%.

The convertible bond is intended as a temporary unsecured solution to improve the financial position of the relevant company. The loan must be repaid once the company’s situation normalises. Tesi has also the right to convert the loan into equity. The interest rate is 10% p.a. and the principal amount must be paid at maturity, together with accrued interest. Tesi will primarily finance projects in which existing owners or new investors participate in the financing, but it may also finance companies without co-investors.

4. Summary

As seen from the above, quite a few financing opportunities are currently available for mid-cap companies impacted the Covid-19 crisis in Finland. However, as the applications will be largely handled on a case-by-case basis, unexpected issues in obtaining and receiving the financing may arise.

For more information, please contact:

Jan Waselius

Senior Partner

Essi Hietaoja

Associate