Brussels, 05/07/2006 (Agence Europe) - On 30 June, the European Commission adopted a communication on financing the growth of SMEs and promoting European added value. The communication unveils a series of measures to help SMEs acquire easier access to external financing so that they can start up and expand. The Commission's initiative comprises measures for generating more venture capital investment, developing bank finance for innovation and making existing financing systems more SME friendly. The Commission has set the objective of tripling the annual early-stage investment in the EU from €2 billion to €6 billion by 2013.
Faced with the lack of courage of many banks that consider innovative SME financing is a high risk (high cost of transaction and low profitability), especially during the start-up stage, the Commission suggests a series of measures to facilitate access to venture capital in Europe, where investment amounted in 2004 to €10.8 billion compared to 16.5 billion in the United States.
The Commission first of all suggests increasing its financial contribution to start-up investment for innovative SMEs. The new Competitiveness and Innovation Framework Programme (CIP) will provide €1 billion through its financial instruments from 2007 to 2013, which are expected to leverage €30 billion in finance for SMEs. Managed by the European Investment Fund (EIF) and other international financing institutions (EIB, EBRD, Development Bank of the Council of Europe), some 400,000 SMEs will benefit from EU investment support. The Commission will first of all increase its investment envelope of nearly €540 million over the period 2000-2006 (including 140 million for venture capital, 340 million for loan guarantees to SMEs and 60 million for capacity building) to over €1.1 billion over the period 2007-2013 (including 500 million for venture capital, 500 million for loan guarantees and 100 million for capacity building).
The Commission also wants to stimulate the creation of a venture risk market that is still too fragmented by eliminating, in cooperation with the Member States, obstacles that stand in the way of activity by venture capital funds in the Union, while strengthening investor interest for start-up capital. It mainly plans to review State aid procedures for risk capital funds in favour of young innovative firms in particular.
In order to strengthen the traditional financing of innovation by banks, the Commission intends to organise a round table between banks and SMEs on how to improve the chances for long-term banking relationships(aimed at persuading bankers not to be too shy regarding innovative financing), use the new CIP financial instruments, promote micro credit and mezzanine financing (a combination of equity and debt) and evaluate the advantages of tax relief systems for young innovative companies.
Finally, the Commission wants to closely involve Member States in its initiative. According to Industry Commissioner Günter Verheugen, it is largely up to the Member States to ensure that the regulatory and fiscal environment encourages entrepreneurs to develop good ideas into new services and products and for the financial markets to finance these. The Commission therefore invites Member States to: - implement investment readiness programmes; use good practices in implementing risk capital policies at all levels; study the advantages of introducing a Young Innovative Company Scheme; consider the advantages of expanding the market for hybrid instruments in SME finance; efficiently use the JEREMIE process to obtain a set of financial products specifically engineered for SMEs; and consider the possibilities for a more neutral taxation of the different forms of enterprise financing.