€21 billion of EU loan guarantees for banks to boost SME lending
Banks will be offered €21 billion of EU funding guarantees to encourage lending to small and medium-sized enterprises (SMEs), which don’t have enough collateral to secure loans.
SMEs are seen by the EU’s executive as drivers of economic recovery and job creation. Since the financial crisis, many companies have struggled to borrow money, meaning they can’t grow.
The European Commission on Tuesday (22 July) unveiled two separate initiatives to increase funding for SMEs and a new €100 million a year scheme to bring new ideas to the market more quickly.
The executive signed an agreement with the European Investment Fund, which the Commission said would open up €25 billion of potential finance for SMEs over the next seven years. The EIF provides risk finance to SMEs across Europe. €1.3 billion is set aside for SME financing in COSME, the EU programme for the Competitiveness of Enterprises and Small and Medium sized enterprises.
The Commission said the COSME programme’s leverage effect meant that every euro invested in a loan guarantee facilitated lending of up to €30 to SMEs.
The EIF will give that money to financial intermediaries such as banks or funds, who will in turn make it available to SMEs. The intermediaries will set out the exact financing conditions and the decision to provide a loan will be made by them as well.
The intermediaries will be selected by the EIF, following a call for expressions of interest and a due diligence process.
The Commission estimates that up to 330,000 SMEs will receive loans backed by the guarantees. It is expected total lending will hit €21 billion with an average guaranteed loan of about €65,000 per firm.
€4 billion of the COSME budget will be invested in venture capital funds, particularly those operating cross-border. Venture capital fund managers invest in start-ups, exchanging finance for shares in the company. About 500 companies should get equity.
Commissioner for Industry and Entrepreneurship Ferdinando Nelli Feroci said, “Thanks to COSME, European SMEs will soon have access to up to €25 billion in additional finance in the form of both loan guarantees and equity. This is an important part of the EU's response to overcome the well-known difficulties SMEs face in obtaining access to credit.”
Pier Luigi Gilibert, chief executive of the EIF said, “Building on the successes of the Competitiveness and Innovation Programme, COSME’s predecessor, which has enabled SME financing of approximately €20 billion and helped to support more than one million jobs, we aim to further improve the access of finance for SMEs and to contribute to growth and employment in Europe.”
Horizon 2020 programme
A second scheme will be piloted as part of Horizon 2020, the EU’s €80 billion research and innovation programme.
The €100 million Fast Track to Innovation (FTI) offers grants to consortiums of three to five organisations who need the money to give promising ideas the last push to get to market.
It is open for any sector and to any organisation established in the EU or in a country associated to Horizon 2020. An important proviso is the presence of industry in the consortiums.
The FTI will be brought online in 2015 and 2016 with a total budget of €200 million for the two years. Proposals for funding can be submitted at any time over those two years. It should take six months at the most to get the money after applying for it.
Unlike the COSME drive, it is not restricted to SMEs. The idea is to increase the numbers of those applying for EU research funding for the first time, encourage more private investment into research and innovation and reduce the time it takes for an idea to get to market.
EU officials expect grants to be between €1 and €2 million. In special cases a grant of €3 million could be considered.
Contests for five innovation prizes will also be held in 2014 and 2015. Worth €6 million they cover three areas of research, health, the environment and ICT.
The first calls for funding under Horizon 2020 were made in December. Since then more than 17,000 proposals have been received, asking for nine times the available funding. More than 5,500 SME applications were made and a further 2,700 applications made under a new €3 billion SME Instrument.
The Commission today also confirmed €7 billion for Horizon 2020 calls in 2015.
European Research, Innovation and Science Commissioner Máire Geoghegan-Quinn said, "Today we are firing the starting gun on the 2015 calls and I am confident they will meet equally strong demand. The Fast Track to Innovation and the new prizes will provide even more opportunities for innovators across Europe to get involved. With these measures we are contributing to increase Europe's competitiveness and create growth and jobs."
COSME is the EU programme for the Competitiveness of Enterprises and Small and Medium-sized Enterprises (SMEs) running from 2014 to 2020 with a planned budget of €2.3bn. Since the financial crisis banks have been lending less to small business, which are struggling the finance they need to grow.
Horizon 2020 is a part of Innovation Union, a Europe 2020 flagship initiative aimed at enhancing global competitiveness. The European Union leads the world in some technologies, but faces increasing competition from traditional powers and emerging economies alike. Horizon 2020 is the EU's biggest ever research and innovation framework with a seven year budget worth nearly €80 billion.