COVID Aid Package

Are start-ups losing out?

The Austrian start-up scene is demanding tailor-made solutions for start-ups, as existing aid measures such as the provision of guarantees do not adequately take into account the specific set of conditions that young, innovative companies on the market are faced with!

At present, the measures to prevent the spread of the COVID-19 virus pose massive problems for Austrian companies, especially as plant closures, the decline in production and the partial discontinuation of services give rise to unexpected liquidity bottlenecks. These measures affect large and small enterprises alike. However, young, up-and-coming companies – so-called start-ups – should be emphasised in particular, as they have not yet been able to build up capital reserves to help them weather the storm. This puts them at particular risk of experiencing payment difficulties due to the COVID crisis and of slipping into insolvency.

In an attempt to reduce the burden on companies, the Federal Government has introduced measures such as the new reduced working hours model and loan guarantees for bridging loans. The latter are of particular interest to companies, as ongoing payments are nonetheless incurred. The guarantees, which cover 80% of the loan amount, are issued by Austria Wirtschaftsservice (aws) and are subject to several conditions:

For example, the criteria laid down in the Company Reorganisation Act may not have been met in the previous year. This means that the notional debt repayment period must not exceed 15 years and there must be an equity ratio of 8%. However, even a lot of start-ups whose development is healthy and typical for start-ups will not be able to meet these requirements because they are still very much in the start-up phase. Due to high investments and associated loans, their equity ratio is often very low. As a result, many start-ups are unable to apply for loans successfully and are dependent on other financial aid, which is probably difficult to obtain at this time.

For this reason, it would be desirable to take start-ups into account and provide tailor-made solutions for them. Innovative companies promote Austria as an economic area on a long-term basis and help the country's economy in the long run.

A rescue package for start-ups, for example, could consist of guarantees that are not linked to the equity ratio. However, tax deductibility of private aid or loans would also be conceivable. This would place less of a burden on the public purse and give private investors an incentive to inject further capital into start-ups in the crisis.

In this context, it would also be desirable for the legislator to clarify the situation regarding the double equity capital of the aws, as this is linked to business management objectives that cannot be achieved in most cases. A deferral of the double equity requirement could be helpful in this respect.