COVID-19 Loan guarantees for technology start-ups

GUARANTEE PROGRAMME

Programme has ended with 31st of December 2021. Applications until then will be considered.

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 is carried out in cooperation with the Basler Kantonalbank (BKB).

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.

More details please see below.

KEY 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. The contributions have to be made by equity investors who are independent of the company.

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.

Under the cantonal guarantee programme, the Basler Kantonalbank (BKB) grants subordinated loans (see section "LOAN AGREEMENT").

To assure the subordination, the loans must be guaranteed by a third party sponsor who is ready to stand surety for the remaing 10% of the loans. In a first phase with an amount of CHF 10 mio. guarantees, the Eckenstein-Geigy-Stiftung in Basel acted as sponsoring partner of the Canton. In the second phase, applying for guarantees under the cantonal programme was conditioned to the nomination by the company of an own sponsor who shall bear the remaining 10% of the guarantee risk (see section "REVIEWING AND PROCESSING OF APPLICATIONS"). It is expected that the named co-guarantors are sufficiently independent of the company and in particular are not involved in the management of the company and have not acted as founding investors.

A condition for granting guarantees is the participation of the Canton 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 under the section "Documents".

Companies submitting applications have the option of proposing a commercial bank of their own choosing as lenders if this should be necessary. These banks must also be approved by the Canton.

In any event, the same guarantee and loan agreements prescribed by the Canton under the cantonal programm 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. 

The approval of the co-guarantor(s) proposed by the company also takes place during the application review. A separate agreement is concluded with them.

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.

LOAN AGREEMENT

As part of the cantonal guarantee programme for start-up companies, the Basler Kantonalbank (BKB) grants corresponding loan agreements. The loans are subordinated. 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:

Business Plan

• 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?)

Financial

• 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)

Formale aspects

• 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.