First EU programme designed specifically for SMEs will promote entrepreneurship, ease access to finance and increase the EU’s GDP by €1.1B per annum, says the Commission
There will be a big boost for small companies when the €2.3 billion Programme for the Competitiveness of Enterprises and SMEs (COSME), voted through the European Parliament this week, gets off the ground in January 2014. The programme is intended to create more favourable conditions for start-ups and entrepreneurship, at the same time as providing access to bank loans, venture capital and other forms of finance for SMEs.
Despite the agreement on what is the first European Union programme dedicated to SMEs, interest groups argue the programme’s budget is too low, especially in comparison to the €80 billion for Horizon 2020, the EU’s flagship R&D programme. Horizon 2020 is “geared toward highly innovative SMEs and therefore not attainable to most,” said Patrick Gibbels, Secretary General of the European Small Business Alliance (ESBA). “Though research and innovation are important, we urge the institutions not to undervalue mainstream SMEs,” he said.
Of the €2.3 billion voted through for COSME - which replaces support available under the Competitiveness and Innovation Framework Programme - almost €1.4 billion will be spent on easing access to credit through loan and equity facilities. Commission Vice-President Antonio Tajani said SMEs face large and disproportionate obstacles to accessing the finance they need to survive and thrive. “We expect that from now until 2020 around 344,000 EU firms will receive COSME-backed loans […] of up to, and even over, €150,000,” Tajani said.
The prospect of easier access to finance was welcomed by Gibbels, who said it is particularly important in the current economic climate. Banks are asking entrepreneurs “for exorbitant collateral and offer loans [only] against very high interest rates,” he said. “The COSME programme has the potential to offset some of these negative effects on small businesses.”
SMEs are responsible for creating 85 per cent of new jobs in Europe. “Each year, COSME is expected to contribute to an increase in the EU’s GDP by €1.1 billion, and assist 40,000 firms in creating or saving 30, 000 jobs and launching 1, 200 new business products, services or processes,” said Tajani.
Sharing the risk
A recent study by the Commission and the European Central Bank found that one third of European SMEs did not manage to get the full financing they had planned for in 2013, leading policy makers to earmark €1.4 billion for loan and venture capital instruments.
The allocation of the €1.4 billion, “will be decided by market demand,” said Julien Guerrier, Head of Unit, Enterprise Policy and Financial Instruments at DG Enterprise. There will be no prior allocation between sectors, countries, or types of company.
Under the loan facility, the European Investment Bank and European Investment Fund will provide banks and other financial intermediaries with a guarantee against a proportion of potential losses when they provide loans to SMEs. This should allow projects to get financing that would otherwise be too high-risk for individual banks. COSME will cover loans up to €150,000, and loans above this for projects that do not fulfil the innovation criteria for Horizon 2020.
Horizon 2020 meanwhile, will focus on more elaborate projects and offer loans of between €7.5 million and €25 million for medium to large companies, and between €25 million and €300 million for large firms.
So far, financial intermediaries from fourteen EU countries have agreed to participate, but the aim is to achieve widespread coverage.
Investing in risk capital
COSME includes an equity facility to provide risk capital through financial intermediaries, primarily in the form of venture capital. Horizon 2020 will focus on business start-ups, whereas COSME funds will be directed at businesses in their growth and expansion phase. “Multi-stage risk capital funds investing in early and growth-stage SMEs may receive funding from both programmes on a pro-rata basis,” said Guerrier.
Up to the end of December 2012 the Competitiveness and Innovation Framework Programme had mobilised more than €2.3 billion in venture capital. Over the course of the next seven years the ambition is that COSME will see at total of €4 billion invested in 560 SMEs.
Gibbels however warned against overreliance on venture capital elements of the COSME programme, as its relevance is restricted to a small percentage of highly-innovative SMEs. “It is the more accessible debt financing such as loan guarantee schemes that will benefit most of our small businesses,” he said.
Access to international markets
At present, only 25 per cent of European SMEs are active outside of their domestic market, a restriction that is seen as a major obstacle to business growth. Of the total COSME budget, 21.5 per cent, or approximately €495 million, has been earmarked to increase this.
This support will be provided through the Enterprise Europe Network (EEN) of almost 600 business support organisations in more than 50 countries, including chambers of commerce and SME representative groups. “The EEN will get funding from COSME to help SMEs making their first steps in the internal market and promising non-EU markets by providing services such as advice on EU legislation, how to find business and technology partners, or participation in EU funded programmes and access to EU financing,” said Guerrier.
The remainder of the COSME budget will go towards improving the conditions for SMEs, including measures to reduce unnecessary administrative burdens and red tape. There will be attempts to promote entrepreneurship, especially among young people and women. The Erasmus for Entrepreneurs exchange scheme will see a significant increase to its budget, providing support for 10,000 people over the next seven years. The Council is expected to endorse COSME regulation on 5 December, with the first calls for proposals due to take place in mid-January. The implementation of a large part of the COSME programme will be handled by a new executive agency for SMEs (EASME), building on the existing executive agency for competitiveness and innovation (EACI).