Taxpayer wallets dip by half a million euros due to Paintermeister's bankruptcy.
Bankruptcy of Linz's "Happy Painter:" A Closer Look at the State-Backed Loan
The Tradition-rich painting business "Happy Painter" has filed for bankruptcy, with the Coronavirus pandemic once more, cited as the primary cause. However, a more in-depth analysis of the company's financial standing reveals a different narrative.
According to reports by oe24, the strain on the business began to show when its equity ratio dropped from 35.3% to a mere 3% due to losses, with liabilities spiraling from approximately one million euros to around 1.6 million euros. The most significant increase was recorded in the first year of the pandemic, during which the company received a state-guaranteed bridge loan of 500,000 euros from its main bank.
This loan was facilitated by Austria Wirtschaftsservice (AWS), a state-owned organization. As a result of the bankruptcy proceedings, the main bank is expected to claim the AWS guarantee, further stretching the budget. KMU-Finance Insider Gerald Zmuegg has long criticized the design of these state guarantees, arguing that the short repayment terms make it challenging for many businesses to meet their financial obligations.
Zmuegg suspects that the loan terms may have played a role in the downfall of "Happy Painter." Experts have pointed out that the short-term nature of these loans often leads to non-performing loans at the time of issuance due to their short maturities. This raises questions about the liability of the legislature, AWS, and banks, though many affected companies refrain from further investigation due to pressure.
The fallout from this situation has cost taxpayers up to 500,000 euros, and around 103 million euros in guarantees are set to become due in 2024 alone. Zmuegg estimates that the total burden on the budget could reach around 500 million euros by 2024.
"These AWS loans are expensive for taxpayers," Zmuegg notes. He regrets the absence of strong incentives for AWS and banks to actively support the survival of affected businesses, pointing out that the bank is secured by a mortgage of approximately one million euros.
Comparable cases have emerged in other businesses, such as the recently-publicized Palmers, with short-term state-guaranteed loans being identified as one of the primary causes of liquidity problems. This incident underscores the need for a reevaluation of the design and implementation of these loans to ensure they provide sustainable financial aid to businesses most in need.
[1] Enrichment Data: The design and structure of state-guaranteed loans play a crucial role in their effectiveness. Short-term loans may not always be suitable for businesses with unique financial cycles and challenges, potentially leading to over-indebtedness, unfavorable loan terms, and a lack of incentives for both lenders and borrowers to avoid undue risks. By tailoring financial solutions to the specific needs of creative and small enterprises, it is possible to provide support that balances immediate liquidity needs with long-term sustainability considerations.
[1] In light of the Bankruptcy of Linz's "Happy Painter," it appears that the design and structure of state-guaranteed loans can significantly impact a business's financial health.
[2] The short-term nature of the loans provided to businesses like "Happy Painter" may not be suitable for industries with unique financial cycles, potentially leading to over-indebtedness, unfavorable terms, and a lack of incentives for responsible financial conduct. If resources are tailored to meet the specific needs of creative and small enterprises, it could facilitate a balance between immediate liquidity and long-term sustainability.
