New SME finance tools launched amid worsening gloom

  

SPECIAL REPORT / A new European Commission-backed SME funding instrument, launched last week, seeks to entice increasingly wary banks to back the strapped sector by matching risk associated with innovative companies. But SMEs feel gloomier than ever, new data show.

The Risk Sharing Instrument (RSI) signed its first agreement with UniCredit Bank Austria to support up to €120 million of lending over two years.

The instrument was developed by the European Commission in partnership with the European Investment Fund (EIF), the specialist provider of SMEs for the European Investment Bank (EIB), based in Luxembourg.

The RSI aims to encourage banks to provide loans and leases of between €25,000 and €7.5 million to SMEs and small mid-caps undertaking research, development or innovation, and seeking finance for investments or working capital.

“Looking at the equity market, statistics reveal that the shortage of risk capital continues. Overall, the situation of SMEs is really tight when trying to access finance so that there is an unresolved flight to quality,” Richard Pelly, EIF chief executive, told EurActiv.

UniCredit Bank Austria is the first bank in Europe to offer the RSI-backed loans, but others are expected to follow before year end.

New role to encourage private-sector cash

The new risk sharing instrument reflects the way the role of the EIF has changed in recent years, Pelly said, expanding its role from fund-of-fund manager designed to stimulate SME lending, to new business collaborations with business angels and corporate investors – such as the RSI banks.

Since the collapse of Lehman Brothers in September 2008 triggered the current financial crisis, Pelly said that the EIF has tripled its equity commitments and doubled guarantee volumes. “Talking in figures: We have committed €1.1 billion in equity in 2011 which catalysed €6 billion in new risk finance for Europe’s SMEs,” he said.

Pelly said that the share of public resources – such as funding from Commission and member state-backed subsidy schemes – has increased significantly as a percentage of total lending since the onset of the crisis, and the EIF contributes about 50% of the public money currently invested in SMEs across Europe.

“As the effects of the financial crisis are likely to continue, we are striving towards achieving a balanced and sustainable equity ecosystem by stimulating private sector investments. This also includes investments with new partners, such as corporate investors, to target specific sectors and helping them to leverage their own investments,” Pelly said.

However  the increasing wedge of public funding of SMEs relative to the private sector reflects serious difficulties that the mid-market sector is experiencing raising loan finance.

SMEs are 'downright pessimistic'

Following ongoing evidence of hardening access to finance earlier this week, a report issued on 16 October found that sentiment among SMEs themselves has sunk to new lows.

European SMEs have moved from deep uncertainty to ‘downright pessimism’, according to a survey of business sentiment conducted by UEAPME, which represents crafts and smaller businesses.

UEAPME’s “SME Business Climate Index” fell from 70.5 to 67.5, below the 70-point barrier UEAPME sees as a neutral business climate.

All the measured economic indicators declined compared to the first half of the year, with the smallest companies indicating they are the hardest hit at the moment.

Positions: 

“Uncertainty has turned into pessimism, especially in the countries hardest hit by the crisis and in the eurozone. It is hard to deny that Europe is now in a full-fledged recession, with the low prospects and the negative figures that we have measured for  all indicators and  for the business sectors depending on internal demand. Austerity policies and con-solidation measures have clearly  hit SMEs the hardest,” said Gerhard Huemer, director of the UEAPME Study Unit, which issues the “Craft and SME Barometer” twice a year prior to the EU summits in spring and autumn.

“SMEs have the potential to restore growth in Europe. They are at the heart of our efforts — as highlighted by the proposal to reindustrialise Europe that I released a few days ago… We try to restore confidence so that SMEs can make progress once again and drag us out of the current crisis,” according to European Commission Vice President Antonio Tajani, Commissioner for Industry and Entrepreneurship.

Timeline: 
  • 15-21 Oct.: European SME Week
External links: 

European Institutions

Federations

  • European Private Equity and Venture Capital Association: Website
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