Smarter Business Guide to the European Investment Bank

Transcription

1 Smarter Business Guide to the European Investment Bank

2 Ireland s membership of the European Union (EU) has been a key factor in its recent development. Our membership will play a vital role in helping the country overcome its current economic challenges. Continued engagement with the EU must be a priority if we are to benefit fully from the range of economic instruments and supports available to member states. There are a number of EU-led schemes currently in operation which can be of direct benefit to Irish businesses. Traditionally, the main obstacles for Small and Medium Sized Enterprises (SMEs) benefiting from EU economic supports have been a lack of awareness of schemes available and an uncertainty as to how to access them. With this in mind, Chambers Ireland, with support from the Department of Foreign Affairs and the Communicating Europe Initiative, has developed this guide to one of the key economic instruments of the EU, the European Investment Bank Group. The European Investment Bank Group was established in 2000 when the European Investment Bank (EIB) and the European Investment Fund (EIF) were combined into a single entity. The EIB Group now offers clients a one-stop shop for a range of financial products. The principle area of cooperation between the EIB and the EIF is in support of SMEs. Among the SME facilities currently offered by the EIB Group, the most common are: Global Loans Global loans are credit lines granted by the EIB to partner institutions (banks or other financial intermediaries) which may use EIB funds as an attractive source of funding for their medium/long-term SME lending activity. Projects undertaken by SMEs are eligible once the nature of the assets financed requires medium/long-term financing and the total project cost per investment does not exceed 25m. EIB funds may be used to finance up to 50% of the total project cost. The EIB pays special attention to the fact that an appropriate part of the financial advantage generated by its funds is transferred to the final beneficiaries and that SMEs are informed about EIB support in a transparent manner. EIF Venture Capital Facilities The EIF acts as a fund of funds, investing in

3 venture capital, particularly early-stage hightech funds. EIF's venture capital instruments consist of equity investments in venture capital funds that support SMEs, particularly those that are in their early stages of development and those that are technologyoriented. With a current portfolio of in excess of 4.4bn invested in 266 venture capital funds, the EIF has contributed to the investment capacity of these funds through minority investments. EIF Guarantees The EIF also indirectly enhances SMEs access to finance by reducing commercial bank risk exposure to SME loan portfolios, either by providing credit insurance (guarantees) or credit enhancement (participation in securitisation transactions) for these portfolios. The EIF s credit insurance involves guarantee or counter-guarantee cover in relation to a counterparty s portfolio of SME or microcredit loans or leases, with the Fund taking up to 50% of the credit risk on every individual loan or lease in the portfolio. Joint European Resources for Microto-Medium Enterprises JEREMIE Traditionally, monies from EU Structural Funds have been spent as grants, which are issued as once-off payments on a project basis. The JEREMIE initiative offers new opportunities for Member States and Regions to invest and re-invest Structural Funds using a range of financial instruments, instead of grants. Investment and reinvestment opportunities through JEREMIE mean that funds are used to maximum advantage, gaining additional value, or leverage, and also that funds can be used over a longer period for the benefit of SMEs. The purpose of the JEREMIE initiative is to facilitate access to finance for start-ups, micro-enterprises and SMEs, via a range of financial products adapted to the specific needs of final beneficiaries (including equitytype or mezzanine investments).

4 Intermediated Loans One particular product from the Global Loans suite that may be of specific interest to Irish SMEs is the Intermediated Loan. EIB Intermediated Loans are lines of credit or indirect loans designed to permit the financing of projects with a total investment cost of less than 25m ( 10m in the case of ACP). An EIB credit line may finance a maximum of 50% of the total cost of any project. Intermediated Loans FAQs Can an SME obtain an EIB loan directly? The EIB does not finance SMEs directly, but indirectly via credit lines in favour of commercial banks or other financial intermediaries. The intermediary will use the EIB finance to fund the loan it provides to its SME client. Can an individual obtain an EIB loan? The EIB does not provide consumer credit or house loans. It provides loans to SMEs, artisans and sole traders for business related investments. What is an eligible EIB SME investment? EIB funding has to create added value by investing in new production or service ventures. The EIB, therefore, only finances new productive investments; new productive capacity, plant or equipment modernisation, or environmental upgrades. Operational costs for research and development activities may also be eligible for EIB financing. Can a private company obtain an EIB loan to buy another company? No. Purely financial transactions are not eligible for EIB financing. Can a private company obtain an EIB loan for short term or working capital needs? No. EIB finance is made available for medium term loans, typically from 3 to 12 years. What is the definition of an SME used by EIB? To be eligible, SMEs must have fewer than 250 employees. The SME must also be independent, i.e. no shareholder holding more than 25% of its capital should have a

5 total number of employees exceeding 250. The total number of employees (SME + shareholder with more than 25% of capital) must not exceed 250. When the Line of Credit is linked to the use of Community funds (e.g. SME Finance Facility) or to a national measure involving State Aid, an additional criterion applies: the company s turnover cannot exceed 50m and/or its balance sheet total cannot exceed 43m. How can a SME apply for a loan under an EIB Line of Credit? Applications should be addressed directly to the intermediary financial institutions or commercial banks. A regularly updated list of EIB partner banks, including contact names is available on the EIB s website. What are the administrative requirements for an SME to obtain an EIB loan via an intermediary bank? The SME should select an EIB partner bank in its country of operation and approach it with all documentation necessary for a standard banking due diligence of its investment plan. All intermediary banks perform standard risk due diligence and verify the investment eligibility for EIB funding. Administrative requirements may vary depending on the chosen intermediary. Who decides about whether an SME will finally receive a loan based on EIB funds or not? The intermediary bank takes the decision based on its risk evaluation. The EIB does not interfere in this decision. What is the interest rate on a loan funded by the EIB? The interest rate is a combination of funding cost and risk premium as calculated by the intermediary bank, who takes on the full responsibility for assessing, pricing and assuming the risk on individual projects. The diverse range of EIB partner banks fosters competition and encourages banks to put forward the best possible offer. This promotes the transfer of favourable lending terms to final beneficiaries.

6 EIB Anti-Crisis Measures After the dramatic deterioration of financial markets and the expansion of the economic crisis in 2009, the EIB has developed programmes and tools to counter the credit crisis. The EIB is modernising and strengthening its support for Europe s SMEs, by both increasing the amount of funding available and developing new products. Increase in Funding The EIB will earmark 15bn over the period for loans to European SMEs granted via commercial banks, as part of an overall package of 30bn by This constitutes a substantial increase over its historic lending in this sector. The EIB therefore plans to do more but also to do better. It has developed a new lending mechanism called EIB Loan for SMEs which will still be deployed via commercial banks, but will be simpler, more flexible and more transparent, so benefiting a greater number of SMEs. New Products By the end of 2009 the EIB will offer the intermediary banks more sophisticated risksharing products designed to reach market segments that commercial banks have difficulty penetrating (i.e. SMEs for which the risk is considered too great or the security provided is judged insufficient). Three types of measure will be developed: 1. Loans where risks are shared with the banks, with the EIB guaranteeing part of the total risk taken on by the intermediary bank; 2. Loans where the EIB takes a risk on the beneficiary SME directly, in parallel with the intermediary bank; and 3. Mezzanine products for high-growth SMEs or gazelles. Through its subsidiary the European Investment Fund (EIF), the EIB Group will provide participating loans, which are like quasiequity and enable gazelles to increase their ability to obtain bank credit without necessarily having to open up their capital or provide substantial security (the participating loan being converted into shares only if the company is unable to repay the loan).

7 Finally, the EIB and the European Commission will work together to establish a pan-european microcredit fund aimed at very small enterprises. This fund will allow loans to be granted, through around 30 European microfinance institutions, for the creation and development of very small enterprises, as well as to provide technical assistance to such companies. This will focus in particular on companies located in sensitive areas. The information in this booklet is sourced from For further information in relation to EIB s supports of SMEs, see: index.htm Chambers Ireland is Ireland s largest business organisation, with 60 member chambers representing over 13,000 businesses throughout the island of Ireland. This Smarter Business Guide was produced with the assistance of the Communicating Europe Initiative. The Communicating Europe Initiative, administered by the Department of Foreign Affairs, provides grants to groups and organisations for the development of EU themed projects. For further information on the Department of Foreign Affairs, and the Communicating Europe Initiative, see For information on Intermediated Loans: intermediated/index.htm For further information on European Investment Fund services to small business: ndex.htm

8 Points of contact for Irish SMEs Allied Irish Banks, p.l.c. Ballsbridge Dublin 4 Mr Lewis Kelly Assistant Product Manager, Business Credit Products, Product Management & e-channel Development Tel: Lewis.K.Kelly@aib.ie Bank of Ireland 40 Mespil Road Dublin 4 Ms Clare Shine Business Banking Tel: clare.shine@boimail.com Bank of Scotland (Ireland) Business Networks Bank of Scotland House St Stephens Green Dublin 2 Mr Daragh Kelly Senior Product Manager Tel: daragh.kelly@bankofscotland.ie Ulster Bank Block D, 2nd Floor George s Quay Dublin 2 Ms Olivia Mangan Strategic Operations Unit BBRI Tel: olivia.mangan@ulsterbank.com General information Information Desk EIB Communication Department info@eib.org Tel: (+352) A CHAMBER PUBLICATION