The role of COSME in promoting access to finance for SMEs Policy objectives and design of the debt instrument

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1 The role of COSME in promoting access to finance for SMEs Policy objectives and design of the debt instrument Operational training Session (OTS) on "Innovations in Credit Guarantee Schemes: A way to Success" Zagreb, Croatia 15 October 2015 Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs Unit H3: COSME Financial Instruments Astrid Bartels (Team Leader) 1

2 What is COSME? First European programme which is only dedicated to the support of SMEs ( ) 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 2

3 Policy Objective of the financial instruments 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 3

4 Implementation Objectives of the debt financial instrument Instrument has to be flexible; should allow tailoring to the specific market conditions (instrument which works across geographies) Allow broad range of financial intermediaries to participate in the programme to reach as many SMEs as possible Simplify the instrument as much as possible while respecting legal and policy boundaries Adapt to regulatory requirements of financial intermediaries 4

5 The debt financial instrument Loan Guarantee Facility (LGF) with three 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 SME Initiative: bundling of resources from Member States / central EU financial instrument and EIF & EIB (for uncapped guarantees and counterguarantees) 5

6 Details of the Loan Guarantee Facility Builds on the SME Guarantee Facility of the Competitiveness and Innovation Framework Programme (CIP) ( ) 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 No sector restrictions, but EIF restricted sector policy applies Guarantee for the securitisation implementation mechanism is linked to an undertaking by originator to create a portfolio of new SME financing transactions 6

7 Technical details of the central COSME guarantees (not SME Instrument) (1/3) Capped portfolio guarantee Guarantee rate of max. 50% per loan/guarantee/financing transaction included in the portfolio Capped at the level of expected losses of portfolio (max. 20%) Covers only newly generated transactions Minimum duration of transaction is 12 months Max. guarantee of 10 years, underlying transaction can be longer Guarantee is free of charge (no guarantee fee) Maximum loan amount threshold of EUR 150,000 applies - larger loans can only be covered under the COSME LGF if SME 7 does not meet any of the 12 InnovFin criteria

8 Technical details of the guarantees (2/3) COSME LGF is State Aid consistent, i.e. it does not contain State Aid but maximum loan amounts apply (between and , depending on sector and duration) COSME LGF covers investment and/or working capital financing, bank guarantees COSME LGF can in certain circumstances be combined with other financial instruments Guarantee facility provides a framework => financial intermediary can create product adequate for its market (unconditional / conditional guarantee possible) 8

9 Technical details of the guarantees (3/3) COSME LGF covers Higher Credit Risk Transactions to SMEs of two types: Option 1 Target Higher Risk Profile clients/products through: - New product set up for Start-ups; OR - Extension in maturities and/or reduction in collateral; OR - New products or existing products offered to previously excluded client sectors Ground up COSME cover Unconditional guarantee Option 2 Increase in volumes of (guarantees of) loans to SMEs related to - most risky 25% of current portfolio by internal rating; OR - full portfolio in case of guarantee institutions and promotional banks COSME cover is conditional on the Intermediary realising certain volumes of activities as defined within the Guarantee Agreement Conditional guarantee 9

10 How can financial intermediaries apply? EIF has launched continuous open calls for expression of interest through its website (open until 30 September 2020): LGF: nstrument/cosme-loan-facility-growth/index.htm EFG: ument/cosme_efg/index.htm List of Participating Countries in COSME available on this website: 10

11 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 ( ) 11

12 access2eufinance.ec.europa.eu 12

13 Thank you for your attention! 13