Financial shield – Micro enterprises and the SME sector

The financial shield is a government program introduced under the Act on the system of development institutions to support micro, small and medium-sized enterprises that have sustained losses as a result of SARS-CoV-2 pandemic.

Financial shield – Form of support

The financial instrument provided for in the program is a financial subsidy granted by the Polish Development Fund under a contract that the beneficiary must conclude in order to receive the subsidy.

Main assumptions of the program are as follows:

up to 75% of the subsidy may be remitted (provided additional conditions are met);
the subsidy may be used only for the purposes provided for in the program (i.e. to cover the costs of business activity, including payment of remuneration for employees, payment of rent or provision of services under contracts concluded with contractors);
possibility to use the subsidy to repay a loan. However, the beneficiary will be able to use up to 25% of the received subsidy for early repayment of loans;
no possibility to use the subsidy to make settlements with related entities;
no possibility to use the subsidy to finance direct or indirect acquisition (takeover) of another entrepreneur;
as a rule, financial aid in the form of a subsidy can be cumulated with other public aid up to a total limit not exceeding EUR 800,000;

The contract to be concluded with the beneficiary which will constitute the basis for receiving the subsidy may specify additional conditions for disposing of the received subsidy.

Who can apply financial support?

Micro enterprisee. an entrepreneur being a natural or legal person or an organizational unit not being a legal person that has been granted legal capacity, that carries out business activity, or a partner in a civil law partnership in the scope of their business activity employing from 1 to 9 employees, excluding the owner, and whose annual turnover or balance sheet total does not exceed EUR 2 million;
Small and medium-sized enterprises (SMEs) e. an entrepreneur being a natural or legal person or an organizational unit not being a legal person that has been granted legal capacity, that carries out business activity, or a partner in a civil law partnership in the scope of their business activity employing from 10 to 249 employees, excluding the owner, and whose annual turnover does not exceed EUR 50 million or balance sheet total does not exceed EUR 43 million; and is not a micro enterprise.

Fulfillment of the above criteria is determined based on the number of employees as at December 31, 2019.

The annual turnover or balance sheet total should generally apply to 2019. However, if the entrepreneur’s financial year does not coincide with the calendar year, then the entrepreneur’s last full financial year must be taken into account and the annual turnover or balance sheet total be determined on its basis.

Employees are considered to be:

persons employed under an employment contract and registered for social security by the beneficiary;
persons cooperating with the beneficiary, regardless of a legal form (in particular on the basis of civil law contracts), which were registered by the beneficiary for social security as at the date of determining the employment status for the purposes of determining the amount of the financial subsidy;
persons on unpaid, maternity or childcare leaves and retired persons who have an employment relationship with the entrepreneur, and who have been registered for social security by the entrepreneur.

What are the conditions for receiving financial support?

a prerequisite for an entrepreneur is to record a decline in economic turnover (sales revenues) in any month after 1 February 2020 due to disruptions in the functioning of the economy due to COVID-19.

For micro enterprises, the program provides for three thresholds of revenue decrease on which the amount of subsidy depends:

(i) a decrease of at least 25% and no more than 50% (the base amount of subsidy per employee is PLN 12,000)

(ii) a decrease of at least 50% and no more than 75% (the base amount of subsidy per employee is PLN 24,000)

(iii) a decrease of at least 75% up to 100% (the base amount of subsidy per employee is PLN 36,000)

The maximum amount of subsidy is calculated separately for each beneficiary and depends directly on the individually calculated values (i.e. this amount depends on the number of employees and the base amount. The program does not provide for one maximum subsidy threshold (an average amount of financial support is estimated at around 72 – 96 thousand PLN for one micro enterprise).

For small and medium-sized enterprises (SMEs) the program also provides for three thresholds of revenue decrease:

a decrease of at least 25% and no more than 50%
a decrease of at least 50% and no more than 75%
a decrease of at least 75% up to 100%;

The maximum amount of the subsidy is calculated as a percentage of the entrepreneur’s sales revenues in the financial year 2019 and it will be respectively 4%, 6% and 8% depending on the scale of decrease in turnover (the average amount of financial support is estimated at about PLN 1.9 million for one enterprise)

If there is no decrease in revenues or if decrease in revenues was lower than 25%, the subsidy will not be granted.

Other conditions for obtaining a subsidy are as follows:

requirement for an entrepreneur to operate as at December 31, 2019;
no bankruptcy, liquidation or restructuring proceedings have been opened against the enterprise;
the entrepreneur has a tax residence in the Republic of Poland and has settled taxes for the last 2 financial years (if applicable) in the Republic of Poland and whose main beneficial owner does not have a tax residence in any tax haven;
as at 31 December 2019 or as at the date of financing, the entrepreneur was not in arrears with payment of taxes and social security contributions, whereas distribution of payments into installments or its deferral is not considered as arrears;

Due to the applicable EU thresholds in the scope of allowed state aid for entrepreneurs, maximum amount of the subsidy may under no circumstances exceed PLN 3,500,000.

What are the terms of remitting the subsidy?

Micro enterprises

up to 75% of the subsidy may be remitted at the end of the 12th calendar month from the date of payment of the subsidy on the following terms:

25% of the subsidy is non-refundable provided that business operations are continued within 12 months of its granting;
additional 25% may be non-returnable depending on maintaining the average level of employment over a 12-month period. If employment is reduced, the percentage of subsidy to be returned is proportionally higher.

Small and medium-sized enterprises (SMEs)

up to 75% of the subsidy may be remitted at the end of the 12th calendar month from the date of payment of the subsidy on the following terms:

25% if business operations are continued;
25% depending on the loss in sales sustained by the enterprise;
additional 25% depending on maintaining the average level of employment over a 12-month period. If employment is reduced, the percentage of subsidy to be returned is proportionally higher;

Micro, small and medium-sized enterprises (SMEs) are required to repay the financial support of 100% of the value of the subsidy in the event of:

discontinuance of business activity (also in the event of suspension of business activity) by an entrepreneur (at any time within 12 months from the date of granting the subsidy)
opening the liquidation of an entrepreneur (if applicable) or opening the bankruptcy / restructuring proceedings (at any time within 12 months from the date of granting the subsidy)
the subsidy will be repaid in no more than 24 equal monthly installments, starting from the 13th calendar month, counting from the first full calendar month after the date of granting the financial subsidy (it is possible to repay earlier after fulfilling the obligations indicated in the subsidy contract).

The Polish Development Fund may decide to change the terms of remittance for beneficiaries whose revenue decreased by more than 75%, taking into account the individual situation of the beneficiary.

Detailed repayment rules will be set out in the contract between the Polish Development Fund and the Ministry of Development.

How to obtain financial support?

An application for support may be submitted only through an electronic banking system of the bank participating in the program on the form it makes available from 28 April 2020.

The application may be submitted by one person who meets all of the following conditions:

has access to the beneficiary’s electronic banking system;
is authorized to make transfers or make declarations of will on behalf of the beneficiary;
submits a statement that he/she has been authorized by the beneficiary to perform all activities related to submitting the application and signing the support contract, is aware of criminal liability for submitting false testimonies and acting on behalf of the beneficiary without the required authorizations, and releases the intermediary bank handling the payment and the subsidy from the obligation to observe banking secrecy towards the Polish Development Fund to the extent necessary for the conclusion and performance of the subsidy contract;
is able to sign the application using bank authorization tools;

The beneficiary may appeal against a positive decision to grant support in an amount lower than requested, in respect of the unallocated amount, after prior clarification of the reservations indicated in the information on the reasons for the reduction in the amount of support (within 2 months from the conclusion of the contract).

In the event of a negative decision the beneficiary will be entitled to re-submit the application after prior clarification of the reservations indicated in the information on the reasons for the rejection of the submitted application.

Authors:

Grzegorz Witczak
Director of the Commercial Law and Property Department, Advocate
TGC Corporate Lawyers

Klaudia Szatan
Junior Associate
TGC Corporate Lawyers

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