Will it be possible to repay State-Guaranteed Loans (PGE)?

During the health crisis, the Government introduced a system of guaranteed loans designed to address a situation of extreme uncertainty. The loans were granted to firms by banks, with the Government guaranteeing a portion of the amount, depending on the size of the firm. The state-guaranteed loans were widely taken up by French firms in 2020, with very high uptake rates, even amongst the largest firms. These loans grew to such an extent that there were fears that, for a large proportion of firms, the debt burden would quickly become unsustainable. In this paper, we perform an evaluation of the recipients’ ability to repay these loans, using highly detailed administrative data. The firms that took part in the scheme are often among those hardest hit by the health crisis, but the banks excluded those that were particularly unprofitable before the crisis, whilst the most profitable firms were less keen to apply. An analysis of the firms’ balance sheets indicates, as might be expected, that the beneficiaries’ gross debt has risen very sharply. However, this has not in fact been accompanied by an increase in net debt to alarming levels, because some beneficiaries also received other grants and others only made use of the PGE scheme as a precautionary measure. Furthermore, by the end of 2020, the beneficiaries’ capacity to invest did not appear to have been affected compared with firms that had not made use of the PGE. Finally, at that same date, bankruptcy rates were found to be particularly low amongst participants in the PGE scheme, including in the sectors hardest hit by the health crisis. All these factors point to a strong capacity to repay, provided, of course, that macroeconomic conditions continue on their path to recovery.