Distressed firms and loan guarantee programmes during the COVID-19 crisis

Bessonova E., Fedulova M., Popova S.

To mitigate the shocks caused by the pandemic-related restrictions, many governments have implemented extensive enterprise support measures, including the provision of government guaranteed loans to businesses that faced sharp declines in revenue. In Russia, the introduction of loan guarantee programmes allowed many businesses which had never previously obtained bank loans to apply for them under the new circumstances. This led to a sharp increase in the number of small loans. At the same time, our estimates show that financially vulnerable companies are less likely to receive loans under loan guarantee programmes. Our estimates for the Russian economy show that participation in loan guarantee programmes has helped firms in the industries hit hardest by the COVID-19 crisis to better preserve their sales and employment levels. On the other hand, our results suggest that if loans are obtained by zombie firms or financially vulnerable companies, the positive effect is either absent or is weaker than for financially stable enterprises.

Distressed firms and loan guarantee programmes during the COVID-19 crisis