COVID-19 Loan guarantees for technology start-ups
The COVID 19 pandemic affects technology start-ups in specific ways. The Canton of Basel-Stadt therefore provides special support for these companies in the form of a loan guarantee programme. The programme allows start-ups based in Basel-Stadt that have run into difficulties because of COVID-19 to receive subordinated loans. The relevant ordinance of the Government of Basel-Stadt is based on §5b of the cantonal Act for economic development. Within this framework, guarantees totalling up to CHF 40 million can be granted by the Canton.
Guarantee applications can be submitted from 14 December 2020 until 31 December 2021 at the latest.
Please note the following points.
The Canton guarantees 90% of bank loans; individual guarantees can amount to a maximum of CHF 5 million. The most important precondition is the evidence of economic damage due to the consequences of COVID-19. A further precondition is that the company must prove that it already achieved financing successes amounting to at least CHF 500,000 during the period prior to the COVID 19 pandemic.
Eligible to apply are Start-ups that established their commercial seat in Basel-Stadt before 1 March 2020 are. In exceptional cases, applications will be accepted where the company was entered in the Commercial Register of Basel-Stadt after 1 March 2020. For this to be possible, the company must provide detailed evidence showing that it was already creating entrepreneurial added value in the Canton of Basel-Stadt prior to the date of its entry in the Commercial Register.
For an initial guarantee tranche of CHF 10 million, Basler Kantonalbank (BKB) and the Eckenstein-Geigy Stiftung in Basel act as partners of the Canton. BKB grants subordinated loans to the start-ups, while the Eckenstein-Geigy Stiftung guarantees the remaining 10% of the loans.
Please note that this first tranche has been used up. The Canton is currently engaged in securing additional sources from partners. We will inform on this site when this has been accomplished. In the meantime you may wish to nominate your own sponsor who shall bear the remaining 10% of the guarantee risk. This sponsor must be accepted by the Canton. If you choose this approach, please get in touch with us. We thank you for your understanding.
A condition for granting guarantees is the participation of the Canton and the Eckenstein-Geigy Stiftung in any subsequent success of the start-up. To this end, the company must contractually undertake to grant warrants (stock options) in proportion to the guarantee amount and the resulting risk assumed. The warrants will be exercised by the Canton in defined success events ("exits"). This means in particular:
- the sale of more than 50% of the company’s shares
- the sale of all of the company’s significant assets
- an initial public offering (IPO).
The predefined warrant agreement which constitutes an integral part of the loan agreement can be downloaded here:
Companies submitting applications have the option of proposing their own guarantors for the 10% part of the loan and commercial banks of their own choosing as lenders. These must be approved by the Canton. In any event, the same guarantee and loan agreements prescribed by the Canton will apply, as will the condition of granting a success participation.
REVIEWING AND PROCESSING OF APPLICATIONS
The first step is for guarantee applications to be formally checked by the WSU. If the applications are complete and fulfil the criteria, the content is reviewed. The review is carried out in cooperation with Innosuisse experts on the one hand and venture capital experts on the other hand.
At the end of the review phase, the company must sign on a legally binding basis the warrant contract entitling the guarantors to participate in the company’s future success. The company will be contacted by WSU about this matter.
Once an application has been submitted, it can be expected to take around six weeks until final decision by the Government of Basel-Stadt. To enable applications to be processed as quickly as possible it is essential that supporting documents are complete and prepared precisely.
The final decision whether to grant a guarantee will be taken by the Government of the Canton of Basel-Stadt alone. There is no legal entitlement to a guarantee.
The loans jointly guaranteed by the Canton and the Eckenstein-Geigy Stiftung are granted by Basler Kantonalbank (BKB) and are subordinated loans. The rate of interest is 0%. The bank may adjust this rate for the first time on 1 January 2023.
The loan shall not be used for
- the distribution of dividends or royalties or for the repayment of capital contributions
- the granting of asset loans
- the refinancing of personal or shareholder loans (whereby bank loans are not considered private loans)
- the repayment of group loans
- bonus payments to members of the Board of Directors, employees, consultants or the like.
In addition, the loan must not be transferred to a non-Swiss-domiciled group company directly or indirectly affiliated with the applicant
NECESSARY DOCUMENTATION AND SUPPORT MATERIALS
The following must be submitted together with the guarantee application:
- Concise presentation in text form (5 to 10 pages in length)
- "Pitch Deck" in PowerPoint form (15-25 pages)
in each case with the following contents:
- Presentation of sphere of activity, development plan, business model, market potential, competitive situation, team, budget and financing plan, investors
- Presentation setting out why the company has an innovative, scalable, fundamentally science-based or technology-based business model
- Evidence of how intellectual property is protected (Is there any patent protection?)
- Documentation detailing the impact of the COVID-19 pandemic (Are there significant economic impacts in the short to medium term?)
- Documentation of ownership and holdings, as well as of previous and/or expected support from shareholders/third parties (loans/share capital)
- Evidence showing that capitalization successes have been achieved with contributions from independent equity investors amounting to at least CHF 500,000 since 1 January 2019.
- Documentation relating to any previous support received from Canton Basel-Stadt (guarantees, rent relief, tax relief, or similar)
- Annual financial statements for the years 2020 (provisional), 2019 and 2018 (audited financial statements if the applicant is subject to mandatory auditing)
- Extract from the Commercial Register or, if the entry in the Commercial Register of Basel-Stadt was made after 1 March 2020, detailed evidence of entrepreneurial added value created in Canton Basel-Stadt prior to that date
- Extract from the debt collection register (issued up to 30 days before the application is submitted)
- AHV payroll reports as of 1 March 2020
- Confirmations from the old-age and survivors insurance (AHV) and the pension fund that there were no outstanding claims as of 1 March 2020
The precise documentation requirements are specified in the application form.