COSME financing for SMEs Brussels, 1 st December 2014 Ciprian Cristea Head of Unit SME Access to Finance European Commission DG Enterprise & Industry 1

2 Significantly decreased lending in the Eurozone since financial crisis Source: ECB monthly statistics of new loans with a maturity of more than 1 year Millions of euro Up to €250,000 Up to €1 million

CIP Programme ( ) 3 Guarantee facility 52 financial intermediaries Supported over 330,000 SMEs Mobilised over €17 billion loans 90% of beneficiaries had less than 10 employees 70% of loans ≤ €50.000

CIP Programme ( ) CIP Inter- mediaries Lenders SMEs 4

ProgrammeFocusAmountMicroSMEsSmall mid-caps Social Change & Innovation micro-enterprises<€25k social enterprises<€500k COSMESMEs<€150k (and above if in principle not eligible under InnovFin criteria) Creative Europecultural and creative sector InnovFin (Horizon 2020) Research, Development and Innovation €25k-€7.5m ESIFSMEs EU debt financial instruments ( ) 5

How do EU financial instruments work in practice – overview 6

COSME call for expression of interest: Financial institutions invited to apply by 30 Sept state aid ok => no need for notification Debt facility (to provide guarantees and counter- guarantees to cover loans for SMEs with a particular focus on financing of SMEs up to € ) Equity facility (to invest in SMEs predominately at the growth & expansion stage) Target beneficiaries: SMEs (less than 250 employees)

Details of the Loan Guarantee Facility free of charge, first loss guarantee (Guarantee rate: ≤50%, cap rate: ≤20%) free of charge, first loss guarantee (Guarantee rate: ≤50%, cap rate: ≤20%) newly originated transactions with a higher risk profile (e.g. start-ups, less collateral, longer maturity) Working capital, investment loans, subordinated loans, bank guarantees, leasing min. 12 months (transaction) – max. 10 years (guarantee) Capped portfolio guarantees Strict focus on additionality Wide range of interventions Duration Principal amount ≤ € 150,000: for any type of SME > € 150,000 : for SMEs not eligible in principle under Horizon 2020 (InnovFin) – verification through checklist ≤ € 150,000: for any type of SME > € 150,000 : for SMEs not eligible in principle under Horizon 2020 (InnovFin) – verification through checklist Guarantee terms Guarantee payment upon default, with pro-rata sharing of recoveries Repayment schedule: fixed or revolving Guarantee payment upon default, with pro-rata sharing of recoveries Repayment schedule: fixed or revolving 8

≥20% ≤50% Remaining risk Risk retained by Intermediary COSME Guarantee Possible combination with nat/ regional sources Possibility to share risk with nat./ regional sources Possibility to combine with EU grants Combination with grants possible for different purposes of expenditure (e.g. Machines, training) => Article 37 (8, 9) CPR A financial instrument cannot be used to pre-finance EU grants Grant cannot be used to reimburse support by financial instruments, for example a loan. Need for state aid consistency For combination with national/ regional sources For combination with grants 9

Options of Loan Guarantee Facility Transactions with more risky new features for SMEs which are not yet provided by Financial Intermediary Applicants need to prove: How does it differ from existing products? Envisaged volumes & pricing Implementation strategy 1) New product with higher risk Guarantee product: Substantially increase in SME financing volumes to which FI has not been actively lending Counter-guarantee product: Substantially increase in guarantees volumes Applicants need to prove: Debt finance granted past 3 years Envisaged volumes 2) Increase in volumes 10

Guarantee coverage Option 1: Cap rate from first guarantee onwards Option 2: Coverage depends on volumes: 11 Reference Vol. Minimum Vol. Maximum Vol. Volume COSME Coverage None Adjusted Maximum

12  The Commission remains committed to the support of SME loan securitisation via the COSME financial instruments  The COSME Securitisation Window will enable the securitisation of SME debt finance portfolios to mobilise additional debt financing for SMEs  Support for the transactions will be conditional upon an undertaking by the financial intermediary to use a significant part of the resulting liquidity or mobilised capital for new SME lending in a reasonable period of time The Securitisation window

Selection process by EIF: First come, first served Pre-selection Quality assessment: capacity to manage risk, experience, quality of implementation proposal Impact assessment: envisaged portfolio (enhanced access to finance, expected loss/ granularity), geographic distribution Due Diligence Business plan: risk management, collection of recovery, compliance with reporting requirements Financial information: funding sources, ownership structure Pricing policy Enhanced access to finance proposal Final selection Final selection and approval 13

Application: demand driven General information Intermediary’s activity: products offered, geographic reach, branch network Financial standing: Annual reports, public resources Operating principles: credit policy, risk management Debt financing volumes, position in the market, pricing policy Proposal Proposed product to be covered Default/ recovery rates Marketing/ promotion: section on website with information how/ where to apply, inform recipients of COSME support and submission of case studies 14

Details of Equity Facility for Growth Eligible final recipient ≥50% into SMEs with headcount: <250 employees Turnover: ≤€50m or balance sheet: ≤€43m ≥50% into SMEs with headcount: <250 employees Turnover: ≤€50m or balance sheet: ≤€43m Growth & expansion stage ≥50% into businesses that already established a product and generate revenues Business angels Funds co-operating with business angels are eligible as long as minimum criteria are met Investment period Long-term investments (5 to 15 year positions) Cross-border investments Funds must contribute to the creation of a pan- European VC market EU contribution EU contribution: % of total commitment At least 30% private investors EU contribution: % of total commitment At least 30% private investors Possibility of joint investments with the early-stage equity facility of InnovFin (Horizon 2020) into multi-stage funds (pro-rata funding) InnovFin (Horizon 2020) 15

Performance Management team: experience Information about target market Track record and deal flow Investment strategy (stage, sector, geographic focus) Size of fund and proposed terms (in line with market) Expected returns Investor base: pari-passu Policy fit Expected support to eligible final recipients in Expansion and Growth stage Additionality (avoid crowding out) Investment strategy in more than one country or support to recipients to internationalise Selection process by EIF: First come, first served 16

Reporting requirements Quarterly reporting Information about Financial Intermediary Share of EU contribution (e.g. guarantee/ cap rate or EU investment) Performance of financial instruments (e.g. volume, leverage) Called guarantees/ impairment of equity investments SME transactions (number, size, sector, turnover, scoring) Annual report EIF publication requirements List of (sub-) financial intermediaries (guarantee cap or investment amount) List of final recipients (for LGF only recipients which receive > EUR 150,000) unless it harms commercial interests 17

How to apply for EU Finance  Financial institutions invited to apply by Sept 2020 o EU Debt Financial Instruments o EU Equity Financial Instruments  Businesses invited to apply for EU finance o Access to finance portal:  For further information o Enterprise Europe Network 18

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Thank you for your attention! 22