October is closely monitoring the economic impact of the Covid-19 on European SMEs. We are in daily contact with our borrowers with whom we have 2 types of discussion:
1 – Borrowers anticipating an economic downturn with a reduction in customer orders and future financial difficulties.
2 – Borrowers already facing financial difficulties as a consequence of the Covid-19 crisis. Their cash flow is becoming unstable, particularly in exposed sectors such as restaurants, catering, and hotels as well as in retail. But the impact is not limited to these sectors anymore. Cash flow tensions are a direct consequence of the measures taken restricting or even stopping transports, closing restaurants and any retail activity while these companies still have to pay some fixed costs (salaries of their employees, rent, suppliers, etc.).
The community of lenders is voting on a support package for the borrowers
October would like to go a step further by activating an automatic freeze of capital repayments of all borrowers in all our countries for 3 months. This means that you, as a retail lender, institutional lenders and the management of October (as lenders in the Funds) will only be receiving interests, for a period of 3 months (April, May and June 2020). This measure may be renewed if deemed necessary.
Why is the management of October suggesting a 3-month loan rescheduling measure renewable?
– We believe that it is in everyone’s interest: it is the best chance for getting lender’s investment back and for companies to survive this crisis. Preserving the companies’ cash is key in that respect.
– The only way we get out of this is together. We are a European company born out of the 2008 crisis and our mission is to empower businesses to thrive by simplifying their funding. We want to help our borrowers preserve employment and recover.
– This 3-month capital freeze is the period we are suggesting now as a short term decision. It could be renewed if needed – nobody knows how long this will last. In this case the decision will be subject to a new lenders vote, just like the one we are doing today.
We have also decided not to charge borrowers their monthly fees during this 3-month period.
How can October apply this automatic 3-month capital repayment freeze?
To take this supportive action towards October borrowers we require the approval of our different types of lenders:
– Institutional lenders, regrouped in the October Funds, are freezing capital repayments for 3 months. As of today, the October Funds represent an investment of 319 million euros.
– The management of October automatically and systematically lends alongside retail lenders to all projects of the platform through the October Funds. We have invested over 12 million euros in the October Funds to align our interest with yours. We have agreed to freeze capital repayments for 3 months.
– The 21,000 retail lenders of the platform. Today we ask them to vote YES or NO to this question: do you agree to freeze the capital repayments of all your October borrowers for a period of 3 months (April, May and June 2020)? Many of the lenders have already asked us “how can I support European SME in this time of extraordinary crisis from home?”.
What are the conditions of this 3-month capital repayment freeze?
– The freeze of capital repayment will be activated for April, May and June 2020.
– For the 3 months to come the borrowers will only be repaying interests, no capital.
– The maturity of the loan will thus be extended by 3 months.
– No monthly fees will be charged during the next three months.
– This support could be extended if the situation doesn’t evolve positively.
Why extend this to all borrowers, not just those who ask for it/really need it?
First, in this situation, almost all companies are facing a sudden, almost total stop in their revenues. Even those which do not already face cash shortages will certainly meet difficult trading conditions in the very near future. This is both a supply and a demand shock the likes of which the world has never seen.
Second, we have seen in the last couple of days that the companies asking for a payment suspension are not necessarily the ones with the lowest cash cushion or in the most exposed industry; it’s the better prepared. For the smaller companies, this is such a struggle for survival that they still haven’t considered their next loan payment in the long list of urgent things they need to do. We think being proactive in solving their problems is a strong necessity.
The vote closes on Thursday the 19th at 12pm. We will apply the 3-month capital repayment freeze if we have a majority of lenders voting yes (in amount lent).
October is fully operational in all of our countries. We are 100% digital by design and therefore can function remotely without any issues in the business. We stay open and will assess all incoming application by the merit of their credit risk as we did before. We take into account potential impact the current situation might have on certain industries, but decide the risk case by case.