Access to finance for SMEs
02 May 2013by eub2 -- last modified 02 May 2013
A joint European Commission - European Investment Bank Group report on the activities facilitating access to finance for small and medium-sized enterprises (SMEs) in 2012 was presented at a meeting of the SME Finance Forum, on the eve of an Informal Competitiveness Council on 2 and 3 May in Dublin. European Commission Vice President Antonio Tajani, responsible for Enterprise and Industrial policy, also launched a new single online portal for all EU financial instruments for SMEs as well a web-based information guide for SME stock listings, to promote SME listings and stimulate investors’ interest in SMEs and mid-caps.
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More than 15 billion for SMEs under Commission CIP programme (2007-2012)
With a budget of € 1.1 billion, the CIP programme has helped to mobilise over € 15 billion for SMEs across Europe.
SME guarantee facility (SMEG): Thanks to its guarantee schemes, CIP has already helped nearly 220 000 SMEs to access over € 13.3 billion in loans.
The high growth and innovative SME facility (GIF): CIP-funded investments in venture capital funds, already supported investment in over 250 fast growing SMEs for € 2.3 billion.
EIB Support for SMEs reached € 13 billion in 2012
The joint Commission/EIB report covers the results of the current schemes in favour of European SMEs as well as new generation of financial instruments for SMEs and the important enhancement of financial resources for SMEs through the increase of the capital in the European Investment Bank with € 10 billion (see below).
The joint report summarises the numerous measures implemented by the EIB Group (the European Investment Bank and the European Investment Fund) as well as the measures provided within the framework of the European Commission's initiatives, such as the Competitiveness and Innovation Programme (CIP), the European Progress Microfinance Facility, The Risk Sharing Instrument Facility (RSI) or the Joint European Resources for Micro to Medium Enterprises (JEREMIE).
At a time when the situation of SMEs access to finance remains difficult, the EIB Group's support for SMEs reached € 13 billion in 2012.
In difficult market conditions, the EIB lent € 11 billion to SMEs. The estimated leveraged impact of 2012 EIB SME financing was at least € 21.4 billion.
Approvals of loans for SMEs increased 14% over 2011 to € 14.0 billion of which € 12.6 billion was in the EU (an 18% increase on 2011):
Signatures of loans for SMEs were € 12.1 billion (a 18% increase on 2011), of which € 10.5 billion was in the EU (a 14% increase on 2011);
Financial intermediaries allocated € 10.7 billion through sub-loans 79 000 SMEs and MidCaps – of which € 9.3 billion through 74 819 sub loans was to SMEs and MidCaps was within the EU.
The numbers of allocations to SMEs was 14% higher than in 2011 and a new record.
The European Investment Fund (part of EIB group) committed a record volume of equity of € 1.4 billion in 63 new funds, exceeding the 2011 figure by 20% and catalysing over EUR 7 billion from other investors;
The EIF:
guarantees to 43 financial intermediaries to stimulate new loan portfolios of € 1.2 billion and mobilising over € 5 billion of additional resources;
€ 40 million in Microfinance commitments mobilising a total of € 114m;
and commits over € 600 million of Structural Funds for the benefit of SMEs to financial intermediaries across 14 JEREMIE Holding Funds, with an absorption rate of 24%.
EIB Group's highlights for 2012
Innovative financing measures to support Greece have been brought together by the EIB, the Hellenic Republic and the European Commission. Signatures of € 290 million for SMEs were achieved in 2012, with eventual EIB loans for SMEs totalling up to € 1 billion.
EU response to overcome the reluctance to SME lending
The Competitiveness and Innovation Framework Programme (CIP, 2007-13)
The CIP Programme (CIP, 2007-13) helps SMEs to find finance they need to operate, develop or grow at different stage of development.
CIP aims at making funding for SMEs easier through the development of the most relevant channel for SME external finance: a bank loan. This is of paramount importance for the vast majority of SMEs. The programme also provides measures focused on the particular needs of SMEs with high growth potential, for which equity investments can be a more suitable source of finance.
The CIP financial instruments are managed by the European Investment Fund through national and regional financial intermediaries (e.g. banks and venture capital funds) in the EU Member States.
The architecture of the programme mobilise financial institutions to provide - under favourable conditions -additional finance to SMEs.
Loan guarantees: EU-backed loans available to SMEs:
Younger and smaller firms are more likely to get only some of the finance they requested from the lending institution (financial intermediary), and, in many cases, to be rejected outright. Here comes the support in form of loans backed by the EU.
Guarantees offered to banks give SMEs access to bank loans on favourable conditions.
under SME Guarantee Facility (SMEG) a lending institution can receive EU guarantee if it intends to lend to SMEs. With an EU guarantee bank can lend to more risky category of clients (young companies, entrepreneurs without a credit history, sufficient collateral, etc.) or simply lend more to SMEs.
Improved access to equity finance:
Small-scale, highly-innovative companies involve a category of risk, which can rarely be accepted by traditional finance providers and as such need a tailored support – other than bank loan.
Half of the CIP resources devoted to SME access to finance are invested by the European Investments Fund in venture capital funds that, in turn, invest in start-ups and SMEs with high growth potential.
The high growth and innovative SME facility (GIF) provides capital - usually in the order of millions of Euros – for innovative SMEs in different stages of development.
COSME will boost EU support to SMEs as of 2014
Once the CIP programme comes to an end in 2013, the Programme for the Competitiveness of enterprises and SMEs, COSME, will cover the timeframe 2014-2020.
The European Commission has put forward its proposals for the next generation of financial instruments for SMEs. They have proven their worth and - through the leverage effects involved - they assure more efficient use of the limited EU budgetary resources.
COSME, specifically created for SMEs, will be a funding instrument which will largely continue the activities of the current CIP programme, but will even better respond to SME needs:
Its equity facility for growth-phase investment will provide SMEs with commercially-oriented reimbursable equity financing, primarily in the form of venture capital through financial intermediaries.
Second, a loan facility will provide SMEs with direct or other risk-sharing arrangements with financial intermediaries to cover loans.
The COSME instruments will be complemented by financing for research- and innovation- driven enterprises under the Programme Horizon 2020.
More information
EUR 10 billion capital increase for the European Investment Bank Group
The EIB Group will maximise the impact of the € 10 billion capital increase paid in by its shareholders, the 27 EU Member States, including new measures to support EU SME growth and innovation over the next three years.
Already in 2013, the EIB Group intends to further expand its support for SMEs in Europe within the framework of the SME Access to Finance Initiative. Challenging targets have been set to increase support, and to broaden the range of distribution channels employed. To meet these challenges, the EIB Group will continue to refine and develop its product offer to ensure that its support reaches SMEs, despite contracting bank balance sheets. Specific initiatives will include measures to enhance combined EIB loans and EIF guarantees and, where appropriate, with the support of EU funds, encourage entrepreneurs to invest, innovate and create new jobs.
More information on the EIB Group in 2012
Agreement on Basel III will ensure continued bank loans to SMEs
The European Commission has also proposed legislation to improve the efficiency of financial markets. Agreement has been reached on the review of the Capital Requirements Directive, Basel III.
The new framework will make banks more solid. In order to ensure an appropriate flow of credit to SMEs in the current difficult economic context, the new rules will introduce a reduction in the capital charges for bank exposure to SMEs, through the application of a 0.76 supporting factor. This will provide credit institutions with an appropriate incentive to increase the available credit to SMEs.
Better integration of the venture capital market
A Regulation on European venture capital funds which was adopted on 17 April 2013 (REGULATION (EU) No 345/2013) will facilitate cross-border fundraising and create a genuine internal market for venture capital funds. It will enable venture capitalists to operate more efficiently within the EU. With the help of a European passport fund managers can market their funds across the EU.
Further information
Improving SME access to capital markets
The European Commission also seeks to develop a framework for efficient, diversified and improved long-term financing for SMEs by helping to attract more private investments. One of the solutions is to improve SME access to capital markets: investors could be encouraged to make more investments in SMEs through more visible SME markets and more visibly listed SMEs and mid-caps.
Two recent proposals to attract investors through more visible SME markets and more visible listed SMEs:
A proposal for the Markets in Financial Instruments Directive (MiFID) to sustain the development of stock markets specialised in SMEs.
A proposal for a modification of the Transparency Directive to give better information on listed SMEs.
Exploring new ideas to improve access to finance for SMEs
The SME Finance Forum is a permanent forum to monitor the market situation and encourage new approaches to improve access to finance for SMEs.
Difficult credit market for SMEs, Europe's job engine
85% of net new jobs in the EU are created by (SMEs). But surveys show that EU SMEs to a very large extent are dependent on bank loans for their external financing and that they practically have very few alternatives: 30% of companies are using bank loans and 40% bank credit lines or overdraft facilities. For 63% of SMEs bank loans are also the most preferable external financing solution to realise firms' growth ambitions.
However, as a result, the situation of SME access to finance remains difficult. In the economic downturn banks have become more risk-averse, asking for higher risk margins and offering more demanding conditions. Also the latest European Central Bank (ECB) data indicate that overall lending to the non-financial private sector remains weak.
Difficult access to credit is among the top concerns (15%) of SMEs: according to the latest survey by the European Commission about one third of SMEs did not get the finance they had planned for.
Further information
Latest ECB data on access to finance in the euro area