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One of the negative economic consequences of the coronavirus pandemic is the sudden lack of liquidity affecting SMEs: these companies are typically the most affected in a crisis, and it is essential to support them with adequate liquidity. However, in a situation of liquidity crunch banks are not incentivized to lend SMEs money due to the sudden increase in perceived risk. Thus the EU and EIB provide guarantees’ support with loans: e.g. the EIF is offering the dedicated EFSI-backed guarantees to contain the impact of the pandemic on SMEs and small mid-cap companies. 

Present actions fulfill the Commission’s commitment made this March to bring immediate relief to hard-hit SMEs, with money able to flow in April. It is part of the package of measures announced by the EIB Group in March designed to rapidly mobilise support for Europe’s SMEs and mid-caps.

Reference to: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_459

The €1 bn unlocked from the EFSI under the COSME Loan Guarantee Facility and the InnovFin SME Guarantee under Horizon 2020 allows the EIF to provide guarantees worth €2.2 bn to financial intermediaries, unlocking €8 bn in available financing. The guarantees will be offered through the EIF to the market, via a call for expressions of interest issued to several hundred financial intermediaries, comprising banks and alternative lenders.

European Commission executive vice-president for economic development, Valdis Dombrovskis said that the Commission and the European Investment Fund were making available huge resources in bringing immediate cash relief to SMEs in Europe affected by the coronavirus pandemic. Money will be flowing during April via local banks and lenders to help those most hard-hit by the crisis. 

EIF Chief Executive, Alain Godard added that in times of unprecedented crisis it was essential that SMEs receive the needed support. The EIF’s adequate response to the COVID-19 virus in launching the billions initiative together with the Commission is only a first step: the EIB Group will continue to work on finding additional solutions to quickly meet the financing needs of entrepreneurs in Europe.

The guarantees’ key features

The guarantees provide, generally, a simplified and quicker access to the EIF support, including: = A higher risk cover – up to 80% of potential losses on individual loans (as opposed to the standard 50%),

= Focus on working capital loans across the EU, and

= Allowing for more flexible terms, including postponement, rescheduling or payment holidays.  

New guarantees will be accessible to new as well as existing financial intermediaries already working with EIF, who will extend special conditions to more than a hundred thousand companies benefitting from guarantees under the COSME’s LGF and the InnovFin SMEG programs.

Additional information on the EU financial programs

= The European Investment Fund, EIF is part of the European Investment Bank group. Its central mission is to support Europe's micro, small and medium-sized businesses by helping them to access finance. EIF designs and develops venture and growth capital, guarantees and microfinance instruments which specifically target this market segment. In this role, EIF fosters EU objectives in support of innovation, research and development, entrepreneurship, growth and employment.

= COSME is the EU program for the Competitiveness of Enterprises and Small and Medium-sized Enterprises (SMEs) running from 2014 to 2020 with a total budget of €2.3 billion.

At least 60% of the program is devoted to improving access to finance for SMEs in the EU states with two financial instruments: the COSME Loan Guarantee Facility supports guarantees and counter-guarantees to financial institutions to help them provide more loans and lease finance to SMEs; the COSME Equity Facility for Growth helps provide risk capital to SMEs mainly in the expansion and growth stages.

= Horizon 2020 is the EU program for Research and Innovation during 2014-20 with a total budget of €77 billion. Under Horizon 2020, InnovFin (the EU Finance for Innovators) represents financial instruments which aim to facilitate and accelerate access to finance for innovative businesses in Europe. In particular, the InnovFin SME Guarantee (SMEG) facility provides guarantees and counter-guarantees on debt financing of between €25,000 and €7.5 mln to improve access to finance for innovative SMEs and Midcaps. Under InnovFin SMEG, a facility managed by the EIF, financial intermediaries, e.g. banks and other financial institutions are guaranteed against a proportion of their losses incurred on the debt financing covered under the facility. See more in:

https://www.eif.org/what_we_do/guarantees/single_eu_debt_instrument/innovfin-guarantee-facility/index.htm

= The European Fund for Strategic Investments, EFSI is the financing pillar of the Investment Plan for Europe, which was launched in November 2014 to reverse the downward trend in investment levels and put Europe on the path to economic recovery. Its innovative approach is based on the use of an EU budget guarantee provided to the EIB Group, which enables substantial public and private sector funds to be mobilised for investment into strategic sectors of the EU states’ economy. The Investment Plan for Europe has already generated more than €460 billion of investment and supported over one mln start-ups and SMEs in Europe.

Perspectives

Following the present call for expression of interest, financial intermediaries with existing EIF agreements under the COSME and InnovFin programs will be able to access the new guarantees immediately upon their request. 

Other financial intermediaries can access the guarantees following a swift application process. In that way new money can already start flowing to hard-hit businesses in April. SMEs will be able to apply directly to their local banks and lenders participating in the scheme, which will be listed on www.access2finance.eu.  

In order to unlock the €1 billion from the EU budget, the Commission and the EIB Group have made some amendments to their specific agreements.

More information in the following links: 

= European Coordinated Response on Coronavirus; 

= Coronavirus website; 

= EIB Website.