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UPDATE 2-Spain to extend loan scheme for struggling firms until June 30

(Adds official confirmation)

MADRID, Nov 16 (Reuters) - The Spanish government will extend the availability of state-backed credit lines by six months until June, also lengthening loan maturities and grace periods under the scheme, the economy minister said on Monday, confirming an earlier Reuters report.

Separately, Bank of Spain Governor Pablo Hernandez de Cos called for an extension of such support instruments “as soon as possible” to avoid a credit crunch as the second wave of COVID-19 infections threatened the recovery.

Economy Minister Nadia Calvino told a news conference the European Commission had authorised an extension of the deadline for the subscription of guaranteed loans until June 30 and the government would use that permission in full.

“In addition, we will go to the maximum permitted in terms of the duration of contracts and grace periods,” she said. The new conditions on state guarantees will be approved at a cabinet meeting on Tuesday.

Sources with knowledge of the matter had earlier told Reuters that guarantees on the credit lines, designed to help companies amid the coronavirus-induced economic crisis, would be extended to up to eight years from the originally planned five on most loans.

They also said that an extra year would be added to the grace periods, which allow borrowers to delay payment without being charged late fees, being found in default or having their loans cancelled.

With nearly 1.5 million cases and 40,769 deaths from COVID-19, and an economy that relies heavily on tourism, Spain has been one of the hardest-hit countries in Europe.

Companies were given until December to apply for the existing state-guaranteed funding scheme of 140 billion euros ($166 billion). The grace period on a significant volume of loans ends in April, and many small businesses fear they will not be able to cope with their payments that soon.

The first line of 100 billion euros approved in March guaranteed credits for five years, while the second 40-billion batch approved in July backs the loans for eight years. ($1 = 0.8447 euros) (Reporting by Jesus Aguado and Belen Carreno, writing by Andrei Khalip, Editing by Hugh Lawson)

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