Support for Start-ups in Switzerland

The COVID-19 pandemic is everywhere and affects the economic activity of all businesses. Among the most severely affected are young and innovative companies: the start-up companies. Not only the general market downturn affects their sales, prospects of growth and the ability to attract financing from business angels and venture capitalists, but – until now – they seemed to have been considered only marginally by the emergency measures put in place by the federal government.

Emergency economic measures – an overview

Since the widespread outbreak of the COVID-19 pandemic in Switzerland, the Swiss Federal Council has implemented several emergency measures to mitigate the economic impact of the corona-virus. Among other things, it has:

  • ordered a temporary stay of debt enforcement to protect debtors from enforcement proceedings (cf. COVID-article);
  • extended tax and social security payment due dates (cf. COVID-article, see also the cantonal measures of the cantons Zug and Geneva);
  • relaxed the requirements for and extended the scope of the so-called short-time work compensation for employees (cf. COVID-article);
  • amended the insolvency regime relaxing the obligations of the board of directors in connection with over-indebtedness and introducing a new so-called „COVID-19-moratorium“;
  • put in place an emergency liquidity aid programme for businesses through guaranteed bridge loans in the (record) amount of up to CHF 40 bn. under the COVID-19 Joint and Several Loan Guarantee Ordinance (COVID-19-Solidarbürgschaftsverordnung) of 25 March 2020 (cf. COVID-article)).

Unfortunately, so far, the majority of start-ups could only benefit from the above mentioned measures to a very limited extent. Particularly the requirement of the COVID-19 guaranteed bridge loans linking the amount of the bridge loan to the turnover of the company (the disbursed amount being max. 10% of the preceding business year’s generated sales) was very unfavourable for start-up companies. Since many start-ups are not operative or do not have a marketable product yet, such a sales-based requirement meant that they would only have a limited or even no access to the emergency facilities. Furthermore, there are signs in the market that fund raising from business angels and venture capitalists is becoming more and more challenging, since the latter concentrate on their portfolio companies and – if they invest at all – price the increased risk in their calculation, thereby lowering the valuation of the companies.

Liquidity support for start-ups

On 22 April 2020, after having been pressured for weeks by a growing Swiss start-up ecosystem, the Federal Council acknowledged that start-ups had little or no access to the existing emergency aid and, considering their importance for the economy as a whole, stated that it would devise a liquidity support programme specifically designed for innovative start-ups. On 4 May 2020 further details of this programme were communicated to the public.

The scheme encompasses the following points:

  • It is based on an existing loan guarantee scheme, whereas the federal government guarantees 65% of a loan and the respective participating canton the remaining 35%. The scheme is not mandatory for any canton – it is in the sole discretion of the canton whether it wishes to participate or not.
  • Companies limited by shares (Aktiengesellschaft) and limited liability companies (Gesellschaft mit beschränkter Haftung) founded after 1 January 2010 but before 1 March 2020 and with domicile in a participating canton, may apply for a loan of up to CHF 1 m. However, the total amount guaranteed may not exceed one third of the start-up’s 2019 running costs, which in particular comprise wages, investments that are not eligible for capitalisation, rents, costs of patent applications and patent lawyers as well as costs for internal or outsourced research and development processes.
  • The total liquidity support guaranteed by the Confederation and the participating cantons amounts to CHF 154 m.
  • At the time of submission of the application for the funds, the start-up may not be in bankruptcy, composition proceedings or in liquidation, nor may it be over-indebted pursuant to article 725 of the code of obligations. Furthermore, it must suffer significant financial and liquidity problems due to the COVID-19 pandemic.
  • The business model of the start-up must be scalable, science- or technology-based and innovative. For the evaluation of these criteria, the canton may seek advice from an expert group, which is coordinated by Innosuisse – the Swiss Innovation Agency.
  • As for the procedure: Starting on 7 May 2020, start-ups may submit the application for funds via the following website. The application will then be forwarded to the respective canton’s appointed reviewing body. Once evaluated and approved by the canton, the application is further reviewed by a loan guarantee organisation, which makes the final decision. With the guarantee confirmation in their hand, the start-ups may apply for a loan from any bank.
  • Any loans granted pursuant to the so-called „COVID-19-Solidarbürgschaftsverordnung“ will be deducted from the disbursed amount.

As of today, only three cantons (Fribourg, Neuchâtel and Vaud) have announced to participate in the new scheme. Other cantons, such as Zurich, Zug or Bern, have already put in place their own emergency support measures for start-ups and will have to decide whether to additionally also participate in this scheme and, if so, how to coordinate the efforts with their own pre-existing measures. It further remains to be seen, whether the two-tier decision making mentioned above does not prove to be too cumbersome and arbitrary for start-ups in dire need of additional financing.