The EU Commission and European Investment Fund made available EUR 8 billion in financing Monday, with a view to bringing immediate cash relief to SMEs in Europe affected by the coronavirus pandemic.
The EU Commission and European Investment Fund made available EUR 8 billion in financing Monday, with a view to bringing immediate cash relief to SMEs in Europe affected by the coronavirus pandemic.
To facilitate release of the funds, the Commission unlocked EUR 1 billion from the European Fund for Strategic Investments (EFSI) that will serve as a guarantee to the European Investment Fund (EIF), part of the European Investment Bank Group. This will allow the EIF to issue special guarantees to incentivise banks and other lenders to provide liquidity to at least 100,000 European SMEs and small mid-cap companies hit by the economic impact of the coronavirus pandemic, for an estimated available financing of €8 billion.
One of the immediate economic consequences of the coronavirus pandemic is the sudden lack of liquidity affecting small and medium-sized businesses. These companies are typically the most affected in a crisis, and the EU executive sees it as essential to support them with adequate liquidity so they can survive the crisis.
However, in a situation of liquidity crunch banks are not incentivised to lend SMEs money due to the sudden increase in perceived risk. That is why EU guarantees supporting these loans are seen as necessary. As of today, the EIF is offering to the market dedicated EFSI-backed guarantees to contain the impact of the pandemic on small and medium sized enterprises and small mid-cap companies.
With businesses across Europe struggling, "the EU is responding quickly to help cushion the blow and to help small and medium-sized companies, which are especially vulnerable," said Commission executive vice-president Valdis Dombrovskis.
The EUR 1 billion 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 billion to financial intermediaries, unlocking €8 billion in available financing. The guarantees will be offered through the EIF to the market, via a call for expressions of interest issued today to several hundred financial intermediaries, comprising banks and alternative lenders. Key features of these guarantees will be:
- Simplified and quicker access to the EIF guarantee
- 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;
- Allowing for more flexible terms, including postponement, rescheduling or payment holidays
The new features 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 benefiting from guarantees under the COSME LGF and the InnovFin SMEG programmes.
Following today's call for expression of interest, financial intermediaries with existing EIF agreements under these COSME and InnovFin programmes 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.
Call for expression of interest to financial intermediaries for the COSME Loan Guarantee Facility