The European Commission (the "EC"), through its decision dated 2 April 2020 1, approved the Maltese state aid COVID-19 loan guarantee scheme (the "CGS"). This decision was prompted by a notification sent by Malta to the EC under the EU Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (the "Temporary Framework").

Temporary Framework

Undertakings, especially Small to Medium Enterprises ("SMEs"), are facing severe lack of revenue and liquidity as a direct effect of measures undertaken by states to combat the spread of the COVID-19 pandemic. In this regard, the EC felt that it is appropriate that Member States ("MS") are empowered to take measures which are intended to incentivise credit institutions and other financial intermediaries to continue to play their role in supporting economic activity in the EU. With this in mind, the European Commission adopted a new (state aid) Temporary Framework to support the economy in the context of the COVID-19 outbreak, based on Article 107(3)(b) of the Treaty on the Functioning of the European Union. Under the Temporary Framework, the EC may declare assistance intended to remedy a serious disturbance affecting the whole or an important part of the economy of a MS as compatible with the internal market (and therefore not in breach of state aid rules).

Amongst others, section 3.2 of the Temporary Framework provides that state aid in the form of public guarantees on loans (such as the CGS) will be considered compatible with the internal market if certain conditions are satisfied, including: (i) the underlying loan amount per undertaking is linked to cover its liquidity needs for the foreseeable future; (ii) the guarantee is granted by 31 December 2020 at the latest; (iii) the duration of the guarantee is limited to a maximum of six years; (iv) the guarantee fee premiums do not exceed the levels specified in the Temporary Framework; and (v) the guarantee relates to investment and working capital loans.


In the notification sent by Malta to the EC of the proposed state aid CGS, the Maltese government confirmed that the budget of the CGS will amount to Euro 350 million, out of which the Malta Development Bank ("MDB") will provide guarantees to local commercial banks for new working capital loans of up to an estimated overall loan portfolio of EUR 777.8 million. The CGS will be implemented locally through risk sharing agreements and service legal agreements entered into by the MDB and local commercial banks.

The ultimate beneficiaries of the CGS are undertakings established and operating in Malta (for SMEs which have up to 250 employees and large enterprises which have more than 250 employees) and which were not in difficulty, within the meaning of the General Block Exemption Regulation 2, the Agricultural Block Exemption Regulation 3 and the Fisheries Block Exemption Regulation 4, on 31 December 2019.

Loan Features

The loans which qualify for the CGS must satisfy certain characteristics such as inter alia, the term of the loans must be a minimum of 18 months to a maximum of 48 months; and the maximum individual loan amounts must not exceed Euro 2 million for SMEs and Euro 5 million for large undertakings.

Eligible costs included in working capital

The CGS will provide guarantees in relation to new working capital loans, the purpose of which include the following costs: (a) salaries of employees, including social and health security payments; (b) lease of establishment, including rental costs, energy and water bills, and fuel; (c) acquisition of material and stock for continuation of business; and (d) maintenance costs. The CGS does not cover restructuring or rescheduling of existing facilities.

Concluding Remarks

Undertakings who wish to avail themselves of the facilities covered by the CGS should contact any one of the accredited banks listed in the MDB's website (N.B. as of the date of writing, the MDB had not announced any accredited banks but we do understand that a number of commercial banks are in discussions with the MDB to enrol into the system) to enquire on their eligibility and other information on the CGS.


1 State Aid SA.56843 (2020/N) – Malta COVID-19: Loan guarantee scheme

2 Article 2(18) of the Commission Regulation (EU) No 651/2014

3 Article 2(14) of Commission Regulation (EU) No 702/2014

4 Article 3(5) of Commission Regulation (EU) No 1388/2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.