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Extra support for small firms in the UK from the European Investment Bank

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30 October 2008

Britain’s small and medium-sized businesses stand to benefit from up to £4 billion in loans from the European Investment Bank (EIB) over the next four years the Chancellor of the Exchequer, Alistair Darling, announced today.

Speaking at a seminar on supporting small business hosted by the City of London Corporation at the London Guildhall, Alistair Darling said:

"Small firms are vital to the strength of our economy. We need to make sure that despite the global credit crunch, they have access to the loans and capital they need to help their businesses grow and develop.

"I am delighted by this commitment from EIB and UK banks to get more finance to small firms, and to ensure the funding is more flexible and easier to access than in the past."

The seminar was attended by the President of the EIB, Philippe Maystadt, the Secretary of State for Business, Enterprise and Regulatory Reform, Lord Mandelson, and representatives of the UK banking, SME and wider investment communities.

Based on the UK’s shareholding in the EIB, British small businesses should be able to benefit from around £4 billion of lending from the EIB between 2008 and 2011. As a first step towards this, UK banks have signalled their interest in securing around £1 billion a year from the EIB.

Several UK institutions already take EIB loans to support their small business clients. They have now committed to discussing with the EIB the potential to draw further additional loans. Other institutions supporting SMEs that have not worked with the EIB in the past have also committed to discussing with the EIB how they can work together, and where they are commercially competitive, use EIB loans to deliver the most effective support to small firms with sound business propositions.

Together with the range of other measures being taken by the Government, these commitments will contribute to ensuring strong small businesses in the UK have access to the best support available.

Notes

1. Present at today’s seminar, organised by City of London Corporation, were the Chancellor of the Exchequer, the President of the European Investment bank (EIB), the Secretary of State for Business, Enterprise and Regulatory Reform, representatives of the main UK banks that lend to small businesses, as well as a range of other bodies including the Federation of Small Businesses.

2. The event was intended to improve awareness of EIB loans and encourage take-up by British banks. Any agreements between UK banks and the EIB will be based, as is usual, on an institution’s financing strategy and the most commercially-competitive way of making finance available to small businesses. The seminar focused on the key role of the EIB in supporting small business in the UK and to explore how British banks and businesses could benefit most from working with the EIB.

3. The Government and the UK banks reaffirmed their commitment to making, wherever possible, finance available to SMEs with sound business propositions, reflecting a shared understanding of the real difficulties that many small firms face as a result of the credit crunch, the subsequent global financial instability, and world-wide economic slowdown that has followed.

4. In this context, the banks recognised the important contribution that the EIB can make in providing additional financial support for small businesses in the UK, including where it is able to make funds available to create financial benefits for SMEs. They strongly welcomed the recent reforms by the EIB to modernise and simplify its SME loan products, as well as the increase in the amount of lending aimed at small firms made available by the EIB to €30 billion (£ 24 billion) over 2008-11.

5. The initiative is the latest step in the Government’s efforts to deliver more support to small and medium-sized enterprises (SMEs) at this time, which also include increasing money available in the Small Firms Loan Guarantee Scheme, and requiring all Government departments to pay creditors within 10 days to ensure the earliest  possible payment to businesses.

6. The EIB is the European Union’s bank. As an AAA credit rated financial institution, able to raise funds on the capital market at advantageous rates, the EIB supports SME investment through ‘SME Loans’ (previously known as Global Loans). SME Loans are credit lines made available to national and regional intermediaries, which then lend on the finance as debt finance to SMEs that meet EIB criteria. The Bank has developed links with around 120 intermediaries across the EU, disbursing historically €5 billion a year to SMEs.

7. In September and October this year, the EIB announced reforms to expand, simply and modernise its SME Loans. The key changes included:

Size:

- raising the level of EIB lending to SMEs over 2008 and 2009 by 50% compared to 2007, making available up to €15 billion. This forms part of an overall envelope for SME lending over the period 2008-11 of €30 billion.

Simplification:

- financing up to 100% of the intermediary’s intervention, instead of financing up to 50% of project cost;
- no limitation on the purchase of used fixed assets, instead of a limitation of a maximum 25% of the total loan amount;
- simplification of sector eligibility by allowing SME financing in all sectors apart from clearly excluded sectors, e.g. arms, tobacco, gambling etc;
- generally introducing ex-post reporting on the basis of a list including the following information; and
- for companies with less than 10 employees, reporting requirements will be simplified even more. 

Modernisation

- including working capital into the range of financial needs eligible for EIB finance by reducing the minimum tenor of sub-loans benefiting from EIB finance;
- rendering eligible expenses (including fixed asset investment and operational expenses for a period of time) for expansion of SMEs, including for instance the building up or acquisition of distribution networks in domestic or foreign markets (inside the EU);
- confirming the eligibility of R&D expenses extending the concept of innovation, including amongst others intellectual property rights (IPR); and
- rendering eligible financing needs up to €1 million for generation change or staff-related company transmission to allow for a continuation in economic activity of the respective company.

8. Further information about the EIB’s support for SMEs is available on the EIB’s website, at: http://www.eib.org/about/news/eib-loan-for-smes.htm.

9. The UK holds a 16.2% shareholding in the EIB. The EIB is a demand-driven institution and so depends on potential borrowers applying to it to draw down finance. Were the UK to receive a share of the EIB’s increased SME Loan fund equivalent to its shareholding, small firms in the UK could benefit from up to £4 billion of EIB finance.

10. Latest BBA statistics on SME lending for the main high street banks providing small business services show that over the twelve months to June 2008:

  • total new net lending to small business from banks in the year to June 2008 of £5.7 billion, including current EIB funding of around €76 million;
  • term lending grew by 11%, to £44.0 billion and borrowing on overdrafts stood at £9.2 billion, some 3% higher than a year earlier;
  • total deposits stood at £54.5 billion, having grown 6% over the year;
  • new banking relationships have been established for 543,000 small businesses and 41% of small businesses bank online.

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Article Published/Sorted/Amended on Scopulus 2008-11-01 12:11:55 in Business Articles

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