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Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union • Helping

SMEs to access finance in the European Union •


Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union •

The European Investment Bank

The EIB’s activity spans all economic sec- participations in 146 operations and derived from its ability to raise funds on
tors with few exceptions. Due to economic EUR 7.3 billion in the form of SME credit the capital markets at keen rates (AAA) and
considerations or ethical standards, guarantees, granted to around 114 banks long maturities. Intermediaries undertake
a few sectors or investment types are or specialist institutions. to inform the final beneficiaries and pass
excluded 2 from EIB eligibility. Moreover, on to them the advantages offered by EIB
in line with EU legislation, EIB operations Financing SMEs is a local business: SMEs credit lines. EIB funds are also attractive
adhere to regulatory restrictions in some need direct access to financial partners for their comparatively long maturities.
sensitive sectors. with high quality local and sector infor- Compared with access to other types of
mation who are able to monitor changing resources, EIB funds are also characterised
All projects financed by the EIB must com- demands closely and carry out appraisals by a high degree of versatility associated,
ply with Community legislation in the of proposed projects.
fields of competition, procurement and
environmental regulation. With around 1 300 staff, mostly based
in Luxembourg, the EIB is not equipped
The EIB’s SME financing has a tangible to deal directly with the thousands of There is an important SME
dimension. Between 2001 and 2005, SMEs spread throughout the EU. Instead, dimension to many EIB
nearly half (EUR 25.4 billion) of the through its global loans, it relies on a financing activities:
EUR 54.9 billion in global loans signed network of commercial banks that are in
by the EIB with some 200 partner banks direct contact with customers. Social and Economic Cohesion:
benefited SME investment projects. in 2005 global loans continued
The EIB’s interventions in favour of SMEs to cater for assisted areas: 66% of
Over the past five years, the EIF’s activities are therefore based on partnership with total signatures in the EU-25 and
63% in the EU-15.
in support of SMEs have translated into financial intermediaries, whereby the
EUR 2.13 billion of signatures for equity EIB provides improved financing terms Implementation of the Inno-
vation 2010 Initiative (i2i)3: one
pillar of i2i is support for entre-
2
Excluded from EIB financing or global loan financing are: (i) land acquisition; (ii) second-hand assets; (iii) war mate- preneurship by financing inno-
rial of any type; (iv) non-generated intangible assets such as patents acquisition; (v) current assets and operating
costs; (vi) tobacco industry and trade; (vii) gambling. Other sectors might be excluded in accordance with the EU vative SMEs and investing via
cooperation strategy for each country. the EIF in venture capital funds
providing innovative SMEs with
equity resources.

3
At the Lisbon European Council of March
2000, the European Union set itself the
strategic goal of establishing a competi-
tive, knowledge-based economy capable
of sustainable economic growth with more
and better jobs and greater social cohesion
by 2010. The EIB Group is a major player in
implementing the Lisbon agenda, in co-
operation with the European Commission.
The objective under its Innovation 2010
Initiative is to lend EUR 50 billion to foster
innovation over the current decade.

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• Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union

in particular, with their availability over


time and flexibility of drawdown in terms
of amount and range of currencies.

EIB global loans

First devised by the Bank in the late 1960s


to contribute to the financing of small
and medium-scale ventures in indus-
try and the service sector, global loans
are medium to long-term lines of credit
that the EIB extends to an intermediary
– a bank or financial institution – which
in turn uses the funds to support invest-
ment projects of limited scale4.

SME global loans generally target enter- to complement its traditional global ary, which generally assumes the final
prises with fewer than 250 employees for loans in Italy, Spain, France, Germany beneficiary risk, as in the case of global
investments of between EUR 40 000 and and Portugal. loans. Mid-cap financing can go up to
EUR 25 million, with loans of up to 50% 50% of eligible project costs for invest-
of eligible project costs, i.e. between Supporting firms as they ments usually between EUR 25 million
EUR 20 000 and EUR 12.5 million. Lower grow: a new EIB instrument and EUR 50 million, generally resulting
allocation limits can be applied in operations for mid-cap companies in loans of between EUR 12.5 million and
designed to support micro-enterprises. EUR 25 million. The procedures in place
In January 2005, the EIB adopted the Com- for approving projects financed by mid-
All global loan financing can be cumula- mission’s Recommendation5 setting new cap loans are streamlined and therefore
tive with other EU support instruments criteria for the definition of SMEs, which faster and better suited to the size of the
(e.g. grants) for SMEs or small-scale infra- notably resulted in a reduction of the projects than those applying to opera-
structure, but must comply with maxi- threshold from 500 to 250 employees. tions financed by a stand-alone direct
mum EU support ceilings. This new definition had the effect of wid- loan to final beneficiaries.
ening the bracket of medium-sized com-
Global loans can be deployed as tar- panies. To facilitate the financing of these In contrast to SMEs, the projects of mid-
geted instruments. To suppor t its companies, while also enabling other cap companies are not automatically eli-
primary objective of promoting invest- medium-sized companies to benefit from gible for EIB financing and must meet at
ment in less favoured areas, the EIB has EIB financing, the EIB has launched a new least one of the EIB’s lending priorities: in
set up global loans specifically aimed at product – mid-cap loans – designed for particular, economic and social cohesion,
assisted regions (e.g. the eastern Länder firms with more than 250 and fewer than i2i or environmental protection.
of Germany) or dedicated to specific 3 000 employees.
policy areas (e.g. the environment and Long-standing cooperation
R&D). The Bank has also carried out a This new instrument consists of a line of with the banking sector
number of securitisation operations credit granted to a financial intermedi-
The EIB’s banking partners must meet
stringent requirements in terms of finan-
cial soundness. When allocating EIB
4
Global loans may also be directed to the financing of small infrastructure projects, typically those of municipalities finance, they evaluate projects in accord-
or other local authorities, where the loan maturities offered by the EIB are particularly well suited to financing in this
sector. ance with contractual criteria laid down
5
The new definition of SMEs is laid down in Commission Recommendation 2003/361/EC of 6 May 2003 (OJ L 124,
20.5.2003, pag. 36). In accordance with Article 2 of the Recommendation, the Bank applies only the criterion of the
in liaison with the Bank and take on the
number of employees: fewer than 250 except in fields governed by the various rules on State aid. management of the loan. The lending

Helping SMEs to access finance in the European Union 3


Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union •

decision rests with the intermediaries,


who are responsible for assessing, pricing
and assuming the credit risk on individ-
ual SMEs and their respective investment
projects.

Over the years, the EIB has developed


financing arrangements with commercial
banks, leasing companies and medium to
long-term banks such as savings, provin-
cial or cooperative banks, real estate and
mortgage banks.

The most relevant aspect of EIB inter-


mediated lending is the structural impact
on both the availability and pricing of
term loans to SMEs. In this context, it is
important for the EIB to cooperate with a
large number of banking partners.

In diversifying the range of its inter-


mediaries, the EIB encourages compe-
tition, making banks more willing to put
forward the best possible offer, and pro-
motes the transfer of favourable lending
terms to final beneficiaries.

The EIB requires intermediaries to ensure


the transparency of global and mid-cap
loans by informing the final beneficiary of
the EIB’s involvement. In return, this also Strong and diversified backing for SMEs in new Member States:
contributes to encouraging competition the SME Finance Facility
between intermediaries and to enhanc-
ing the impact of the EIB’s favourable The SME Finance Facility is a programme financed jointly by the Commission,
financial terms on final beneficiaries. the European Bank for Reconstruction and Development (EBRD), the EIB and
the Council of Europe Development Bank (CEB) in association with Kreditanstalt
In 2004, the Bank adopted the value für Wiederaufbau (KfW). The objective of the SME Finance Facility is to induce
financial intermediaries (banks, leasing companies and investment funds) to
added framework for global loans in the
expand and to maintain in the long term their financing of SME operations in
EU, aimed at monitoring more effectively
eight Member States that joined the EU in May 2004 (Czech Republic, Estonia,
the contribution of this instrument to the
Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia) and in Bulgaria and Roma-
Bank’s key objectives as presented in the nia. Cyprus, Croatia, Malta and Turkey may eventually also become eligible. By
Corporate Operational Plan. The value the end of 2005, EUR 112 million in loans and close to EUR 9 million in grants had
added framework endeavours to main- been allocated to financing some 900 small and medium-scale projects under
tain the highest quality of intermediaries global loans in the above new Member States. In addition, the EIB together with
and ensure that the EIB financial advan- the Commission supported 67 small-scale infrastructure projects through the
tage is appropriately transferred to final Municipal Finance Facility and the Municipal Infrastructure Facility.
beneficiaries. Value added considerations
also apply to mid-cap loans.

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• Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union

The European Investment Fund

The European Investment Fund (EIF) is a and securitised loan and lease portfolios.
financing body of the European Union Counter-parties include banks, leasing ì""W orks to support key
established to support small and medium- companies, guarantee institutions and EU policies in favour of
economic growth and
sized enterprises, to increase their com- mutual guarantee funds.
employment in Europe;
petitiveness and to foster innovation and
technology in Europe. The EIF’s sharehold- The EIF provides technical assistance in ì""Promotes SME finance as
ers are the European Investment Bank these two areas on a fee basis for regional SMEs have the potential to
(62%), the European Commission (30%) bodies, development organisations and improve economic growth
and some 20 public and private financial the European Commission. and integration;
institutions (8%) from across the EU-25. ì""Supports innovation by
JEREMIE increasing overall invest-
EIF support for SMEs ment and private sec-
In October 2005, the EIB Group, the Euro-
E I F tor involvement in major
The EIF finances SMEs by taking stakes in pean Commission and the European Bank research and develop-
venture capital and private equity funds, for Reconstruction and Development ment projects;
in particular European high tech, early- (EBRD) jointly launched the JASPERS and ì""Makes investments on a
stage investments. JEREMIE initiatives. The aim of these pro- market basis in order to
grammes is to help beneficiary countries generate an appropriate
About 40% of the EIF’s investments are to utilise the structural and cohesion return;
early-stage and 56% are tech-related, funds and invest them in good projects,
ì""Carries out its activity in
primarily ICT and life sciences, while the and to increase access to finance in the
the 25 Member States
portfolio is balanced by buyout, develop- regions to encourage more business
and the Accession and
ment and generalist investments. start-ups and new ventures. Acceding Countries, plus
the EFTA countries under
The EIF also provides indirect support JEREMIE has a particularly important SME European Commission
to SMEs by guaranteeing and counter- dimension, being a process whereby the mandate.
guaranteeing portfolios of SME loans Member States and regions will be able to

Helping SMEs to access finance in the European Union 5


• Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union

use part of their structural funds through


the European Investment Fund (EIF) in
order to obtain a set of financial prod-
ucts specifically engineered for micro,
small and medium-sized enterprises. Preparatory Action
Instead of using grants as such, it will be
possible to transform part of the grants Three key dates are:
into financial products. These will then be
ì""3 0/06/2007: the latest date by
rolled over (reimbursed and used again) which a contract with a PCI may
rather than simply “granted” once. be signed;

These products will include equity, ven- ì""30/06/2009: the latest date by
which all projects must have
ture capital, guarantees, loans and tech-
reached completion;
nical assistance and will allow a multiplier
effect on the budget. For each euro ì""31/12/2009: the latest date by which
of budget, the sum of financing prod- the Preparatory Action facility will
ucts available could range from 2 to 10 terminate.
euros. The targeted SMEs will range from
life sciences start-ups to medium-sized
enterprises operating in more traditional
sectors of the economy.

Through this partnership, regions will be


able to benefit from the EIF’s experience
in all areas of investment concerned, but
also from its large network of international,
national and local financial institutions The EUR 2 million facility managed by the Eligible institutions
dealing with SME finance, as well as from EIF on behalf of the EIB Group particularly
the ability of the EIB Group (as well as other targets micro-lending and will be used for
IFIs) to leverage additional funding. grants to finance technical assistance (TA) A PCI is defined as a credit institution,
to small and medium-sized enterprises. including commercial banks and credit
The EIF will work with the full back-up This must be coupled with an EIF guaran- cooperatives. Included are locally regis-
of the EIB and its lending capacity, but tee or an EIB global loan. tered, licensed or incorporated entities
also as a federator of all other sources of and also subsidiaries or branches of EU
finance from other international, national The facility’s objectives include: banks. Whenever practicable, preference
or local financial institutions, investment will be given to regionally based PCIs.
funds, micro-credit agencies, etc., both ì""that staff from the participating credit
public and private. institutions (PCIs) should become famil- The EIF and EIB will select PCIs in accord-
iar with the concept of lending to SMEs ance with their respective internal guide-
Preparatory Action: support and its implications for their business; lines and their assessment of the PCI’s
for SMEs in the new financial ì""that the volume of PCI loans extended capacity to participate in the facility. Cri-
environment to SMEs should be larger than at teria taken into consideration will include
present; financial strength, creditworthiness, oper-
The Preparatory Action is the latest exam- ì""t hat the loans extended to SMEs ational capability, regional presence and
ple of reinforced EIB-European Commis- should have longer maturities than track record in SME lending.
sion cooperation aimed at facilitating at present;
SMEs’ access to financing in the ten new ì""that the number of SME clients of PCIs It should be noted that banks already
Member States. should be larger than at present. participating in the European Commis-

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Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union •

sion’s SME Finance Facility may not, in


principle, participate in the Prepara-
tory Action.

Eligible projects

In order for potential projects to be


assessed, the PCI should contact the
EIB or EIF for loan or guarantee applica-
tions respectively, and should be ready
to provide on request a description of
the project, its objectives and its justi-
fication.

Funding resulting from an EIB global loan


or an EIF guarantee must be used to pro-
vide loans to SMEs making investments in
fixed assets and long-term working capi-
tal. This may involve new projects or the
modernisation or expansion of existing
businesses in sectors such as manufactur-
ing, agribusiness, hotel, tourism, energy
saving and the environment, construc-
tion, trade and services. ì""T he average size of investments ì""i ntroduction and implementation
financed under the Preparatory Action of the related organisational and
In addition, the following criteria apply: cannot exceed EUR 25 000. managerial procedures and practices
involved; or
ì""Eligible enterprises are SMEs with a Technical assistance ì""circulation of information to SMEs
maximum of 249 employees, a maxi- Technical assistance (TA) will only be regarding the facility and, in particu-
mum annual turnover of EUR 50 mil- financed in conjunction with an EIF guar- lar, micro-lending.
lion and/or a maximum annual balance antee (with a maturity of a minimum of
sheet of EUR 43 million. 18 months) or an EIB loan. It will be pro-
vided by external consultants to PCIs and/
ì""Preference should be given to small or leasing subsidiaries controlled by PCIs
(< 50 persons; balance sheet/annual to strengthen administrative, credit and
turnover < EUR 10 million) and micro management capabilities for loans (in
enterprises (< 10 persons; balance sheet/ particular micro-loans) or financial leases
annual turnover < EUR 2 million). in favour of SMEs.

ì""Eligible SMEs must have majority pri- Activities eligible for TA include:
vate ownership and control, or be in
the final stage of privatisation. They ì""installation of management informa-
must not conduct business in the fol- tion systems specifically geared to
lowing areas: gambling, real estate, SME portfolios;
banking, insurance or financial inter- ì""training of PCI staff in supporting SMEs
mediation or the manufacture/supply and in the appraisal, supervision and
of (or trade in) arms, or activities on the administration of loans extended to
EIF’s or EIB’s exclusion lists. SMEs;

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• Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union • Helping SMEs to access finance in the European Union

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