European Commission has allocated €1,000 billion from the European Fund for Strategic Investment (ESF) to serve as a guarantee for the European Investment Fund (EIF), part of the European Investment Bank (EIB) Group. This will enable the EIF to issue special guarantees to encourage both banks and other lenders to provide liquidity to at least 100,000 SMEs and mid-caps affected by the COVID-19 crisis, for an estimated €8 million in financing.
Thanks to the money released by the EIF under the COSME Loan Guarantee Facility and the InnovFin SME Guarantee in Horizon 2020, the EIF can offer guarantees worth €2.2 billion to financial intermediaries, thus releasing €8 billion of available funding. The market will receive the guarantees through a call for expressions of interest issued by the EIF on 7 April to hundreds of financial intermediaries, banks and alternative lenders among them. The key features of the guarantees as reported by the “European Cluster Collaboration” platform will be:
- Simplified and faster access to EIF guarantees
- Increased risk coverage: up to 80% of potential losses on individual loans (compared to 50% standard);
- Focus on working capital loans across the EU;
- Allowing more flexible terms, including deferment, rescheduling or payment holidays.
Furthermore, in France, Paul-François Fournier, head of innovation at the French state-owned bank Bpifrance, is one of those responsible for distributing an additional €4 billion that the national government has set aside to support new businesses during this economic crisis caused by the coronavirus. Fournier supports the government’s management in sustaining fast-growing technology but also believes that losses will be currently generated and the country will be put in an exceedingly difficult situation if its new companies fail. “The startup ecosystem is beginning to have an impact on job creation, on the real economy, and startups are playing an important role in helping more traditional industries accelerate their digital shift,” he tells Sifted. “We’re all on deck to preserve this dynamic.
France’s management is based on not wasting nearly a decade of effort. Even before the crisis triggered by Covid19, the government organisation La French Tech had already offered a package of aid for startups in Europe. Last year, Bpifrance financed around 4,000 companies through 100 investment funds. It is estimated that there are approximately 10,000 new companies in France, which demonstrates the scope of Bpifrance. For years, the state-backed investor has issued venture capital funds in deploying early-stage growth money and, more recently, in pan-European powers. When Bpifrance was created seven years ago, the funds typically had a portfolio size of approximately €80 million, which has more than tripled since then.
Before the coronavirus crisis broke out, Bpifrance estimated that startups would create a quarter of all new jobs in France by 2020, about 25,000, and although these predictions are now altered by the crisis, the country is counting on being able to return to that path when the situation calms down.
Compared to the rest of Europe, the French government’s policy marks the contrast, in the rest of the continent the situation is more difficult as countries in southern and eastern Europe do not offer enough specific help to startups. In the case of the United Kingdom, where billions of pounds of funds have been pledged to support small businesses, unprofitable technologies are not being allowed, leading to campaigns for a better deal. On the other hand, the European Commission is being pressured by the various startup associations in Brussels who are demanding answers.
Sources: European Cluster Collaboration, Sifted
