Brussels, 15/01/2014 (Agence Europe) - As reported in EUROPE 10996, the European Commission adopted new guidelines on Wednesday 15 January setting out the conditions under which member states can grant aid to facilitate access to finance by European SMEs and companies with a medium capitalisation (the so-called “midcaps”). Certain SMEs and midcaps, in particular innovative and growth-oriented SMEs in their early development stages, have difficulty in getting funding, independently of the quality of their business potential. State aid can help address this funding gap, not by replacing existing funding channels but by attracting fresh money into new ventures through well-designed financial instruments and fiscal measures. The Commission says that the 2006 guidelines were over-restrictive and it has introduced a more flexible system to encourage investment by private companies, investment funds for example, which would otherwise not invest due to the risks and lack of profit involved.
The new guidelines come into force in July and give member states greater latitude, allowing them to provide small business and innovative mid-caps, without prior evaluation by the Commission, with aid of up to €15 million (the current cap is €1.5 million) of varying types (equity, quasi-equity, loans and guarantees). The financial intermediaries and investment funds involved will therefore be able to offer companies the amount and form of financing that is appropriate to their development stage and to the sector in which they operate. A mandatory participation of private investors tailored to the development stage and riskiness of the company will ensure that aid measures serve to attract rather than replace private funding. However, minimum private investor participation will now range between 10% and 60% depending on the age and riskiness of the company. This will allow higher public support to company-creation, where the private business finance markets are the most reluctant to provide the necessary financing. The private participation requirement is now as low as 10% for seed and start-up companies before their first commercial sale.
Other modifications include new and more flexible forms of support to alternative trading platforms: the guidelines allow grants for the setting up of such platforms, as well as tax incentives to investors buying the shares of SMEs listed on such platforms. More flexibility and clearer conditions for tax incentives to investors: tax incentives to natural person investors will be exempted from the notification requirement, complemented by the guidelines which set out the conditions for tax incentives to corporate investors.
The new guidelines come on top of the risk capital measures in the new regulation on exemptions by category, which comes into force in July 2014. The guidelines will remain in force for a number of years, well after the end of the crisis, explained Commissioner Almunia. (FG/transl.fl)