EU announces €21B of loan guarantees for banks to boost SME lending

The European Union (EU) is trying to boost funding for small and medium enterprises through €21 billion of loan guarantees to banks, and a €4 billion investment in venture capital funds.

The SME deal is a tie-up between the European Commission and the European Investment Fund (EIF), which is providing risk finance, with the Commission earmarking €1.3 billion from the Competitiveness of Enterprises and Small and Medium sized enterprises (COSME) programme.

At the same time the European Commission pulled the curtain back on a new €100 million a year scheme to bring new products to the market more quickly, and five new innovation prizes.  

SMEs often do not have enough collateral to secure loans. Based on its calculations, the Commission said COSME’s leverage effect means every euro invested in a loan guarantee facilitated lending of up to €30 to SMEs.

Ferdinando Nelli Feroci, the newly-instated European Commissioner for industry and entrepreneurship, said the money will improve SMEs’, “ability to innovate and even to go abroad.” According to Commission research, only 13 per cent of SMEs are doing business outside the borders of the EU.

It is hoped up to 330,000 SMEs will benefit from loans backed by the EU, with an average guaranteed loan of about €65,000 per company. Expected figures are derived from the success rate of COSME’s predecessor, Competitiveness and Innovation Framework Programme (CIP). Additionally, it is hoped that around 500 companies will get equity through the €4 billion venture capital investment.

The COSME money will be released over the next seven years. The EIF will select the banks and venture capital funds, which will in turn make funds available to SMEs. These intermediaries will set out the exact financing conditions and the decision to provide a loan will be made by them as well.

The entire COSME budget for the period 2014 - 20 is €2.3 billion. The remaining €1 billion of the budget will maintain many of the programmes already in place, including co-financing for the European Enterprise Network, with its more than 600 offices in the EU and beyond. COSME will also support Erasmus for Young Entrepreneurs, entrepreneurship education and IPR helpdesks.

The announcement was the second major EU loan guarantee scheme for European companies this year, following the European Investment Bank’s InnovFin programme in June.

Fast Track to Innovation     

The Commission also announced the Fast Track to Innovation (FTI) pilot scheme which from 2015 will offer grants to project teams of three to five organisations to give promising ideas the last push to get to market.

Unlike COSME and Horizon 2020’s SME instrument, this is not exclusively about SMEs. FTI is open for any sector or organisation established in the EU, or in a country associated to Horizon 2020. An important condition is that consortia must have at least one industry representative.

The FTI will operate in 2015 and 2016 with a total budget of €200 million for the two years. EU officials expect grants to be between €1 and €3 million and it should take six months at the most, to get the money after applying for it.

This is a “bottom-up” exercise, meaning there will be no pre-defined research topics in the calls. The FTI will be assessed after its two-year spell with a decision on whether to continue funding it to be made after.

Five R&D prizes

Contests will be held for five innovation prizes in 2014 and 2015. Worth €6 million they cover three areas of research, health, the environment and ICT.

The prizes will reward new prototypes that help to reduce air pollution, lessen dependence on antibiotics for respiratory infections, allow people with food allergies to electronically scan foods before purchasing, enhance network sharing in a time of scarce online space and knock down barriers to fibre optic communication.

The biggest allocation of money, €3 million, is for the air pollution prize. The mis-use of antibiotics and food scanner contests carry €1 million rewards, and the remaining €1 million will be split evenly between the two ICT contests.

The EU’s inaugural challenge prize, launched in 2012, was to find a way of transporting and storing vaccines without the need for refrigeration. The winner was Ingmar Hoerr, CEO and co-founder of CureVac, a company that has spent 14 years developing RNA-based technology for manufacturing vaccines that are stable at ambient temperatures.

If the objective is chosen carefully, innovation prizes can deliver far more bangs for the R&D buck. In the case of the EU’s vaccines challenge pilot, 49 teams registered to take part in the project, a level of resource that would have cost far more to marshal through grants.