COSME financing for SMEs Brussels 1 st December

COSME financing for SMEs Brussels, 1 st December 2014 Ciprian Cristea Head of Unit SME Access to Finance European Commission DG Enterprise & Industry 1

Significantly decreased lending in the Eurozone since financial crisis Millions of euro Up to € 1 million Up to € 250, 000 Source: ECB monthly statistics of new loans with a maturity of more than 1 year 2

CIP Programme (2007 -2013) 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 3

SM Es rs de Le n m ed In ia te ri res C IP CIP Programme (2007 -2013) 4

EU debt financial instruments (2014 -2020) Programme Focus Amount Social Change & Innovation micro-enterprises <€ 25 k social enterprises <€ 500 k COSME SMEs Micro SMEs Small mid-caps <€ 150 k (and above if in principle not eligible under Innov. Fin criteria) Creative Europe cultural and creative sector Innov. Fin (Horizon 2020) Research, Development and Innovation ESIF SMEs € 25 k-€ 7. 5 m 5

How do EU financial instruments work in practice – overview 6

COSME call for expression of interest: Financial institutions invited to apply by 30 Sept 2020 • Debt facility (to provide guarantees and counterguarantees 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) => k o id for a te eed ion a t t n s no tifica no 7

Details of the Loan Guarantee Facility Capped portfolio guarantees free of charge, first loss guarantee (Guarantee rate: ≤ 50%, cap rate: ≤ 20%) Strict focus on additionality newly originated transactions with a higher risk profile (e. g. start-ups, less collateral, longer maturity) Wide range of interventions Working capital, investment loans, subordinated loans, bank guarantees, leasing Duration min. 12 months (transaction) – max. 10 years (guarantee) Principal amount ≤ € 150, 000: for any type of SME > € 150, 000: for SMEs not eligible in principle under Horizon 2020 (Innov. Fin) – verification through checklist Guarantee terms Guarantee payment upon default, with pro-rata sharing of recoveries Repayment schedule: fixed or revolving 8

Possibility to share risk with nat. / regional sources ≥ 20% Remaining risk ≤ 50% Risk retained by Intermediary Possible combination with nat/ regional sources COSME Guarantee for d e id Ne te a ncy sta iste ns co 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. • For combination with national/ regional sources • For combination with grants 9

Options of Loan Guarantee Facility 1) New product with higher risk Transactions with more risky new features for SMEs which are not yet provided by Financial Intermediary 2) Increase in volumes 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: How does it differ from existing products? Envisaged volumes & pricing Applicants need to prove: Debt finance granted past 3 years Envisaged volumes Implementation strategy 10

Guarantee coverage Volume Minimum Vol. Reference Vol. • Maximum Vol. • Option 1: Cap rate from first guarantee onwards • Option 2: Coverage depends on volumes: COSME Coverage 11 None Adjusted Maximum

The Securitisation window q The Commission remains committed to the support of SME loan securitisation via the COSME financial instruments q The COSME Securitisation Window will enable the securitisation of SME debt finance portfolios to mobilise additional debt financing for SMEs q 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 12

Selection process by EIF: Pre-selection Due Diligence Final selection First come, first served Quality assessment: capacity to manage risk, experience, quality of implementation proposal Impact assessment: envisaged portfolio (enhanced access to finance, expected loss/ granularity), geographic distribution Business plan: risk management, collection of recovery, compliance with reporting requirements Financial information: funding sources, ownership structure Pricing policy Enhanced access to finance proposal Final selection and approval 13

Application: General information Proposal demand driven Intermediary’s activity: products offered, geographic reach, branch network Financial standing: Annual reports, public resources Operating principles: credit policy, risk management Debt financing volumes, position in the market, pricing policy Proposed product to be covered Default/ recovery rates Marketing/ promotion: section on website with information how/ where to apply, inform recipients of COSME support and submission of case studies 14

Details of Equity Facility for Growth Eligible final recipient ≥ 50% into SMEs with headcount: <250 employees Turnover: ≤€ 50 m or balance sheet: ≤€ 43 m Growth & expansion stage ≥ 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 Investment period Long-term investments (5 to 15 year positions) Cross-border investments Funds must contribute to the creation of a pan. European VC market EU contribution: 7. 5 -25% of total commitment At least 30% private investors Innov. Fin (Horizon 2020) Possibility of joint investments with the early-stage equity facility of Innov. Fin (Horizon 2020) into multi -stage funds (pro-rata funding) 15

Selection process by EIF: 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 First come, first served 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 16

Reporting requirements Annual report Quarterly 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) 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) rms it ha l s s unle mercia com rests inte 17

How to apply for EU Finance q Financial institutions invited to apply by Sept 2020 o EU Debt Financial Instruments www. eif. org/what_we_do/guarantees/single_eu_debt_instrument/index. htm o EU Equity Financial Instruments www. eif. org/what_we_do/equity/single_eu_equity_instrument/index. htm q Businesses invited to apply for EU finance o Access to finance portal: www. access 2 finance. eu q For further information o Enterprise Europe Network http: //een. ec. europa. eu/ 18

www. access 2 finance. eu 19

www. access 2 finance. eu 20

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Thank you for your attention! 22