BRUSSELS: The European Commission and the European Investment Bank Group launched a new guarantee facility on Monday for innovative small and medium-sized enterprises (SMEs) to help them access finance from banks.
This builds on the success of the Risk-Sharing Finance Facility (RSFF), launched in 2007, that has so far helped 75 companies benefit from over 7 billion euro in EIB loans to projects enhancing European growth and competitiveness. The new risk-sharing instrument for SMEs will be managed by the European Investment Fund (EIF). In addition, the EIB and the European Commission are to provide extra resources for research infrastructures.
“Investing in research and innovation carried out by SMEs means that we will have more growth, sustainability and competitiveness in Europe,” said European Research, Innovation and Science Commissioner, Ms Máire Geoghegan-Quinn. “The Risk-Sharing Finance Facility has proved to be one of the most successful parts of the EU’s 7th Research Framework Programme, and through co-operation with the EIB has already unlocked significant new investment for research, development and innovation.”
“Without raising its potential through research and innovation, Europe will be unable to generate the growth it needs to maintain its place in the world economy,” said European Investment Bank President Philippe Maystadt. “The Risk-Sharing Finance Facility has already helped many large and mid-cap companies realise their plans. With the changes we are announcing, we are confident that SMEs will now also benefit.”
The SME risk-sharing instrument (RSI) will be managed by the EIF, the EIB Group subsidiary that specialises in providing risk finance to benefit micro, small and medium-sized enterprises across Europe via equity and loan guarantees. The EIF will offer banks a guarantee on part of their new loans and leases to innovative SMEs, allowing the banks to lend more and to do so at more attractive rates.
“Innovative SMEs in their start-up and early stages have particular difficulties in accessing finance,” said EIF Chief Executive Richard Pelly. “The new RSFF guarantee window, the Risk-Sharing Instrument, addresses this funding gap and helps these dynamic and fast-growing SMEs to start and grow their businesses.”
The amendment to the existing RSFF agreement was signed by Commissioner Máire Geoghegan-Quinn and by EIB President Philippe Maystadt at the start of the 2011 Innovation Convention in Brussels. It is expected to unlock a further 6 billion euro of loans until the end of 2013, including up to 1.2 billion euro for SMEs and up to 300 million euro for research infrastructures. From 2014, in conjunction with new instruments for equity finance, the Commission intends to scale up and expand the RSFF under the proposed Horizon 2020 Framework Programme for Research and Innovation.
The Risk-Sharing Finance Facility
If the EU is to reach its target of investing 3 per cent of its GDP in research, it needs to boost private sector investment in R&D and innovation. An important pre-condition for achieving this is mobilising finance. However, financial markets and institutions are often reluctant to back research- or innovation- intensive companies or projects due to the relatively high levels of uncertainty and risk inherent in their activities.
The RSFF, launched in 2007, was a direct answer to this challenge. It improves access to debt financing for promoters of research and innovation investments by sharing the underlying risks between the EU and the EIB. Together, the European Commission and the EIB are providing up to 2 billion euro for the period 2007-2013 (up to 1 billion each). These contributions translate into billions of euro of additional financing available to innovative companies and the research community.
RSFF for SMEs: the Risk-Sharing Instrument (RSI)
The RSI aims to encourage banks to provide loans and leases of between 25 000 and 7.5 million euro to SMEs and smaller mid-sized firms undertaking research, development or innovation, with loan periods of from two to seven years, and with the risk finance covering investments in assets (tangible or intangible) and/or working capital.
The EIB will mandate the European Investment Fund (EIF) to manage the RSI. The EIF, in turn, will enter into individual guarantee agreements with banks following the submission of applications to the EIF under an open call for expressions of interest, which will be launched in early 2012. Applicant banks will be treated on a first-come, first-served basis, subject to their meeting the requirements of the EIF’s standard screening and due diligence procedures.
Under the terms of each agreement, the EIF will provide, in return for a fee, a guarantee to the bank concerned against loan defaults. For each default, the bank would receive 50 per cent of the amount of the loan outstanding. Some 10 or so banks are likely to be involved, and the RSI plans to reach up to 500 beneficiaries, with a total loan volume of up to 1.2 billion euro.
European research infrastructures
Research infrastructures play a crucial role in promoting knowledge and technology in Europe, bringing together a wide diversity of scientists and disciplines. In 2006, the ESFRI published a roadmap identifying 35 priority EU-scale infrastructures required in key scientific areas.The RSFF is helping boost the emergence of these new research facilities, and the amendment will enable loans to be made not only to the infrastructures themselves but also to their suppliers and to enterprises commercialising their results and services.
