The SME Initiative, designed to make it easier for small businesses to access credit, is getting off the ground in Spain, offering an EU-backed guarantee to lenders to cover a portion of any losses.
The initiative, to be financed through the reallocation of €800 million from Spain’s share of EU regional development money, is expected to result in a higher leverage than if the funds were given as traditional grants, pulling in an additional €3.2 billion flow of credit.
“We called on member states to use their EU budget money in a more innovative and intelligent way. Now Spain is doing just that,” said Jyrki Katainen, Commissioner for Jobs, Growth, Investment and Competitiveness, as the scheme launched on Monday.
As yet, Spain is the only country to sign up to the initiative and Corina Creţu, Commissioner for Regional Policy, said she hoped more countries would adopt it in the future.
Jump lead for a stagnant economy
The loan guarantee plan mirrors practices used by the European Investment Bank and steps taken in the past by European governments, for example in the UK in 2011, to jump start struggling sections of the economy.
Since the financial crisis, many companies across Europe have struggled to borrow money, meaning they cannot grow. Banks are often not much help, with SMEs turned away if they do not have enough collateral to secure loans.Alongside the €315 billion investment fund announced last November, the SME Initiative is another example of the EU shifting cash away from traditional grants, the most common way the EU disperses money, and moving to loans and guarantees.
Under the new initiative, the Commission predicts that every euro poured into the scheme will result in at least four euros of loans given to Spanish SMEs.
Culture shift for Regional funds
The announcement also makes good on the EU’s claims that the 2014-2020 programme for regional development funds will be used in a smarter way. Under the new budget, some €100 billion will be set aside for research and innovation, information and communications technology, SMEs and the low-carbon economy.
Speaking during a Science|Business conference last year, then Commissioner Johannes Hahn, Cretu’s predecessor, promised that regional funds – once sprinkled widely to help poor regions catch up – would be more targeted toward innovation. It is hoped this will help to bridge Europe’s research divide between East and West and stem the brain drain from Europe’s Eastern and Southern countries.
Banks to pick winners
Spanish banks rather than the EU will chose to whom they lend and the Commission will shortly publish an open invitation for banks and other financial intermediaries to apply to the scheme.
Once selected, these banks and other financial intermediaries will make SMEs in Spain aware of the new funding opportunities. The exact level of losses covered and amounts loaned will vary from bank to bank.
It is expected that new loans will have been made by the summer.
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