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COSME Financial Instruments

for SMEs

AECM General Assembly (Istanbul), 16 October 2014

Directorate-General for Enterprise and Industry

Unit D3: SME Access to Finance

Astrid Bartels (Policy Officer)

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First European programme which is only dedicated to the support of SMEs (2014 – 2020)

Total budget of € 2.5 billion out of which 60% (~ € 1.4 billion) support financial instruments

Debt and equity financial instrument for SMEs

Loan Guarantee Facility (LGF)

Equity Facility for Growth (EFG)

=> Both part of a single EU debt/equity financial instrument for enterprises’ growth and R&I

What is COSME?

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Support those SMEs which would otherwise not obtain financing (concept of additionality)

Debt: focus on higher risk SMEs

Equity: focus investments into risk capital funds which target SMEs in their growth and expansion phase

Overall target: Provide support to up to 330,000 SMEs; provide up to € 25 billion in financing

Policy Objective of the financial instruments

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Loan Guarantee Facility (LGF) with two implementing mechanisms

Guarantees and counter-guarantees for financial intermediaries providing financing to SMEs

Guarantees for the mezzanine tranche of securitisation transactions of SME loan portfolios coupled with a clear contractual undertaking to build up a new SME loan portfolio

Third implementation mechanism (EU SME Initiative) is under preparation

The debt financial instrument

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Builds on the SME Guarantee Facility of the Competitiveness and Innovation Framework Programme (CIP) (2007 – 2013)

Risk-sharing instrument (not a liquidity instrument!)

Commission has delegated the implementation to an entrusted entity (European Investment Fund)

Demand-driven instrument with no prior country allocation

Guarantee for the securitisation implementation mechanism is linked to an undertaking by originator to create a portfolio of new SME financing transactions

Details of the Loan Guarantee Facility

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Capped portfolio guarantee

Guarantee rate of max. 50%

Guarantee is free of charge (no guarantee fee)

Covers only newly generated transactions

Guarantee facility provides a framework => financial intermediary can create product adequate for its market

Interested financial intermediaries must apply to entrusted entity (EIF)

Technicalities of guarantees and counter-guarantees which remain

unchanged vis-à-vis CIP

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More targeted intervention, financial intermediary must create portfolio of riskier SME transactions (vis-à-vis existing business):

Option 1: create new portfolios of higher risk transactions (e.g. financing start-ups, change risk-profile of product, include client groups which have been previously excluded because of risk, provide higher risk products such as subordinated loans) => unconditional guarantee

Option 2: commit to significantly increase volume of financing to higher risk SMEs => conditional guarantee

Technicalities which change (1/3)

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Underlying financing transaction up to € 150,000; no financing above threshold unless it can be demonstrated that SME is not eligible for financing under InnovFin SME Guarantee Facility (under H2020)

Minimum duration of transaction is 12 months

Broad range of transactions which can be covered (loans, leasing, bank guarantees)

LGF is State Aid consistent => no notification requirement

Technicalities which change (2/3)

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No excluded sectors under COSME but EIF restricted sector apply

COSME Guarantees and counter-guarantees can be combined with financial instruments at regional and national level (only later part is relevant for State Aid)

Strict visibility requirements

Ex-post publication requirements for entrusted entity

Technicalities which change (3/3)

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EIF has launched continuous open calls for expression of interest through its website (open until 30 September 2020):

LGF: http://www.eif.org/what_we_do/guarantees/single_eu_debt_instrument/cosme-loan-facility-growth/index.htm

EFG: http://www.eif.org/what_we_do/equity/single_eu_equity_instrument/cosme_efg/index.htm

List of Participating Countries in COSME available on this website: http://ec.europa.eu/enterprise/initiatives/cosme/index_en.htm

How can financial intermediaries apply?

How will SMEs be informed ?

Single portal on EU access to finance

Provides information on how SMEs can apply for financing (guarantees, loans and equity financing) supported by various EU programmes

Allows searching by country and by type of financing needed

Functionality to be further fine-tuned in the future

Businesses can still apply for financing from EU programmes from previous programming period (2007-2013)

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access2eufinance.ec.europa.eu 12

Thank you for your attention!