COSME financing for SMEs

Brussels, 1st December 2014

Ciprian CristeaHead of Unit SME Access to FinanceEuropean Commission DG Enterprise & Industry

1

2

Significantly decreased lending in the Eurozone since financial crisis

Source: ECB monthly statistics of new loans with a maturity of more than 1 year

Million

s o

f eu

ro

Up to €250,000

Up to €1 million

CIP Programme (2007-2013)

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Guarantee facility • 52 financial intermediaries• Supported over 330,000 SMEs• Mobilised over €17 billion

loans

• 90% of beneficiaries had less than 10 employees

• 70% of loans ≤ €50.000

€0,52bn

€8bn

€17bn

€25bn

Budget

Guaranteed exposure

Loans supported

Investments

CIP Programme (2007-2013)

CIP

Inte

r-

med

iaries

Lend

ers

SMEs

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Programme Focus Amount Micro SMEs Small mid-caps

Social Change & Innovation

micro-enterprises <€25k

social enterprises <€500k

COSME SMEs <€150k(and above if in

principle not eligible under InnovFin criteria)

Creative Europe cultural and creative sector

InnovFin(Horizon 2020)

Research, Development and

Innovation

€25k-€7.5m

ESIF SMEs

EU debt financial instruments (2014-2020)

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How do EU financial instruments work in practice – overview

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COSME call for expression of interest:

Financial institutions invited to apply by 30 Sept 2020

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state aid ok =>

no need for

notificatio

n

• Debt facility (to provide guarantees and counter-guarantees to cover loans for SMEs with a particular focus on financing of SMEs up to €150.000)

• Equity facility (to invest in SMEs predominately at the growth & expansion stage)

• Target beneficiaries: SMEs (less than 250 employees)

Details of the Loan Guarantee Facility

free of charge, first loss guarantee(Guarantee rate: ≤50%, cap rate: ≤20%)

free of charge, first loss guarantee(Guarantee rate: ≤50%, cap rate: ≤20%)

newly originated transactions with a higher risk profile (e.g. start-ups, less collateral, longer maturity)

newly originated transactions with a higher risk profile (e.g. start-ups, less collateral, longer maturity)

Working capital, investment loans, subordinated loans, bank guarantees, leasing

Working capital, investment loans, subordinated loans, bank guarantees, leasing

min. 12 months (transaction) – max. 10 years (guarantee)

min. 12 months (transaction) – max. 10 years (guarantee)

Capped portfolio guarantees

Strict focus on additionality

Wide range of interventions

Duration

Principal amount ≤ € 150,000: for any type of SME> € 150,000: for SMEs not eligible in principle under Horizon 2020 (InnovFin) – verification through checklist

≤ € 150,000: for any type of SME> € 150,000: for SMEs not eligible in principle under Horizon 2020 (InnovFin) – verification through checklist

Guarantee terms Guarantee payment upon default, with pro-rata sharing of recoveriesRepayment schedule: fixed or revolving

Guarantee payment upon default, with pro-rata sharing of recoveriesRepayment schedule: fixed or revolving

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≥20%

≤50%

Remaining risk

Risk retained by Intermediary

COSME Guarantee

Possible combination with nat/ regional sources

Possibility to share risk with nat./ regional sources

Possibility to combine with EU grants

Combination with grants possible for different purposes of expenditure (e.g. Machines, training)=> Article 37 (8, 9) CPR

• A financial instrument cannot be used to pre-finance EU grants

• Grant cannot be used to reimburse support by financial instruments, for example a loan.

Need for

state aid

consistency • For combination with national/ regional sources

• For combination with grants9

Options of Loan Guarantee Facility

Transactions with more risky new features for SMEs which are not yet provided by Financial Intermediary

Applicants need to prove:How does it differ from existing products?Envisaged volumes & pricingImplementation strategy

1) New product with higher risk

Guarantee product: Substantially increase in SME financing volumes to which FI has not been actively lending

Counter-guarantee product: Substantially increase in guarantees volumes

Applicants need to prove:Debt finance granted past 3 yearsEnvisaged volumes

2) Increase in volumes

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Guarantee coverage

• Option 1: Cap rate from first guarantee onwards• Option 2: Coverage depends on volumes:•

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Referenc

e Vol.

Minimum

Vol.

Maximum

Vol.

Volume

COSME Coverage

None Adjusted Maximum

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The Commission remains committed to the support of SME loan securitisation via the COSME financial instruments

The COSME Securitisation Window will enable the securitisation of SME debt finance portfolios to mobilise additional debt financing for SMEs

Support for the transactions will be conditional upon an undertaking by the financial intermediary to use a significant part of the resulting liquidity or mobilised capital for new SME lending in a reasonable period of time

The Securitisation window

Selection process by EIF: First come, first served

Pre-selectionQuality assessment: capacity to manage risk, experience, quality of implementation proposalImpact assessment: envisaged portfolio (enhanced access to finance, expected loss/ granularity), geographic distribution

Due DiligenceBusiness plan: risk management, collection of recovery, compliance with reporting requirementsFinancial information: funding sources, ownership structurePricing policyEnhanced access to finance proposal

Final selection Final selection and approval

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Application: demand driven

General information

Intermediary’s activity: products offered, geographic reach, branch networkFinancial standing: Annual reports, public resourcesOperating principles: credit policy, risk managementDebt financing volumes, position in the market, pricing policy

ProposalProposed product to be covered Default/ recovery ratesMarketing/ promotion: section on website with information how/ where to apply, inform recipients of COSME support and submission of case studies

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Details of Equity Facility for Growth

Eligible final recipient ≥50% into SMEs with headcount: <250 employeesTurnover: ≤€50m or balance sheet: ≤€43m

≥50% into SMEs with headcount: <250 employeesTurnover: ≤€50m or balance sheet: ≤€43m

Growth & expansion stage ≥50% into businesses that already established a product and generate revenues

≥50% into businesses that already established a product and generate revenues

Business angels Funds co-operating with business angels are eligible as long as minimum criteria are met

Funds co-operating with business angels are eligible as long as minimum criteria are met

Investment period Long-term investments (5 to 15 year positions)Long-term investments (5 to 15 year positions)

Cross-border investments Funds must contribute to the creation of a pan-European VC market

Funds must contribute to the creation of a pan-European VC market

EU contribution EU contribution: 7.5-25% of total commitmentAt least 30% private investors

EU contribution: 7.5-25% of total commitmentAt least 30% private investors

Possibility of joint investments with the early-stage equity facility of InnovFin (Horizon 2020) into multi-stage funds (pro-rata funding)

Possibility of joint investments with the early-stage equity facility of InnovFin (Horizon 2020) into multi-stage funds (pro-rata funding)

InnovFin (Horizon 2020)15

Performance

• Management team: experience

• Information about target market

• Track record and deal flow• Investment strategy

(stage, sector, geographic focus)

• Size of fund and proposed terms (in line with market)

• Expected returns• Investor base: pari-passu

Policy fit

• Expected support to eligible final recipients in Expansion and Growth stage

• Additionality (avoid crowding out)

• Investment strategy in more than one country or support to recipients to internationalise

Selection process by EIF: First come, first served

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Reporting requirementsQuarterly reporting

• Information about Financial Intermediary

• Share of EU contribution (e.g. guarantee/ cap rate or EU investment)

• Performance of financial instruments (e.g. volume, leverage)

• Called guarantees/ impairment of equity investments

• SME transactions (number, size, sector, turnover, scoring)

Annual report

EIF publication requirements• List of (sub-) financial intermediaries (guarantee cap or investment amount)

• List of final recipients (for LGF only recipients which receive > EUR 150,000)

unless it harms

commercial

interests 17

How to apply for EU Finance

Financial institutions invited to apply by Sept 2020o EU Debt Financial Instruments

www.eif.org/what_we_do/guarantees/single_eu_debt_instrument/index.htm

o EU Equity Financial Instrumentswww.eif.org/what_we_do/equity/single_eu_equity_instrument/index.htm

Businesses invited to apply for EU finance o Access to finance portal: www.access2finance.eu

For further informationo Enterprise Europe Network

http://een.ec.europa.eu/

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www.access2finance.eu 19

www.access2finance.eu 20

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Thank you for your attention!

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