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Vice President of the European Commission responsible for Competition Policy
Adoption of risk finance guidelines
Brussels, 15 January 2014
Today the Commission has adopted new guidelines on state aid to facilitate companies' access to finance across the EU.
In Europe, the majority of companies, and in particular SMEs, are heavily dependent on traditional bank lending.
The financial crisis has significantly reduced access to credit and exacerbated the difficulties SMEs have traditionally encountered in obtaining funding in the market.
Approximately one third of European SMEs have been unable to obtain the capital they needed to start and develop their activities.
Therefore, measures that help firms with a high growth potential to access finance can make a real difference for the EU economy, at a time when Europe needs to enhance economic growth, encourage innovation and boost job creation.
State aid, by giving the right incentives to address this market failure, can help plug this funding gap. I can even say that such measures are probably the best example of what I call "good state aid".
The current state aid framework for risk capital has proven to be too restrictive in terms of forms of financing, aid instruments and funding structures.
Moreover this framework only covered companies in the earliest growth phase. Companies other than SMEs – that is to say, firms with less than 250 employees – were not eligible.
The new guidelines intend to address these shortcomings.
On the one hand, the problems of companies are not limited to obtaining equity. They also extend to many other financial instruments which are vital for companies to start up and flourish.
On the other hand, SMEs are not the only companies that face problems in access to finance. So do many companies with medium capitalisation - the so-called "mid-caps".
Therefore, our new framework aims to set up a simple, flexible and more effective state aid rules for the provision of risk finance to these SMEs and midcaps.
Let me explain briefly the main changes.
The scope of the guidelines is being enlarged, providing for state aid to midcaps rather than only SMEs. This includes not only small midcaps (of less than 500 employees) but also large innovative midcaps (companies of up to 1500 employees having significant R&D and innovation costs).
Moreover, the guidelines will be complemented by a revised general block exemption regulation (GBER), on which we have recently launched a public consultation. Under the proposal, to be adopted in a few months, a wider range of support measures will be exempted from the obligation of prior notification to the Commission. Risk finance measures of up to 15 million euros per company will now benefit from such an exemption.
This will allow Member States to support SMEs' access to finance with limited administrative burden, and will facilitate the absorption of EU funds in cases where aid measures are co-funded by structural funds.
Above 15 million euros, the Commission will assess the compatibility of the measure to make sure it does not create an undue distortion of competition, but without imposing any specific cap, as long as the aid measure is justified and responds to an identified market failure.
Secondly, the new risk finance rules will better reflect market practices. Financial intermediaries and investment funds involved will be able to provide companies with the amount and form of financing which is appropriate to their development stage and the sector in which they operate. This includes the possibility to freely combine equity, quasi-equity, loans and guarantee instruments.
Thirdly, the minimum participation of private investors will now be tailored to the riskiness and the development stage of the company.
Of course, private participation alongside public investors ensures that aid measures serve to attract rather than replace private funding.
However, minimum private investor participation will now range between 10% and 60%. This will allow higher public support to company creation, where the private business finance markets are the most reluctant to provide the necessary financing.
Member States will be able to provide up to 90% of the investment in seed and start-up companies before their first commercial sale - that is to say, companies which are generally less likely to attract private financing from market players such as banks.
The guidelines contain new provisions on public support to alternative platforms that trade in SME shares, to facilitate the setting up of funding channels alternative to bank lending.
And finally, they also clarify the conditions for tax incentives granted to corporate investors that invest into SMEs.
To sum things up, the new state aid framework will encourage Member States to provide risk finance through effective and well-designed state aid measures.
This initiative complements the other initiatives launched at EU level which contribute to facilitating access to finance, such as Horizon 2020 or COSME, the EU programme for the competitiveness of enterprises and SMEs.
By providing incentives to private investors to invest more into SMEs and midcaps, we can help bridge the funding gap that hampers the development of our companies from the start-up stage onwards. This, in turn, will boost economic growth and job creation.