11 Financial assistance for small and
medium-sized enterprises
| (24815)
11997/03
COM(03) 480
ADD1
| Commission Report: Measures on financial assistance for innovative and job-creating small and medium-sized enterprises (1998 growth and employment initiative) — Situation as at 31 December 2002; and
Commission Staff Working Document: Annexes to the Commission Report.
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| Legal base | — |
| Document originated | 5 August 2003
|
| Deposited in Parliament | 21 August 2003
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| Department | Trade and Industry
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| Basis of consideration | EM of 11 September 2003
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but further information requested
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Background
11.1 The Growth and Employment Initiative was adopted in May 1998.[19]
This fourth report (the last report due under that Decision),
covers the progress achieved on implementation of the three Growth
and Employment Initiative measures — the ETF Start-up Facility,[20]
the Joint European Venture (JEV) and the SME Guarantee Facility.
11.2 In December 2000 a successor programme to the
Growth and Employment Initiative was adopted — the Multi-Annual
Programme for Enterprise and Entrepreneurship (2001-2005) (MAP).[21]
This modified and extended the ETF Start-up Facility and the
SME Guarantee Facility and introduced a new initiative, called
Seed Capital Action.
The Commission Communication and the Government's
view
11.3 The report reviews developments since 2001.
The Commission Staff Working Document includes statistical information
on SMEs which were beneficiaries of the ETF Start-up Facility
or the SME Guarantee Facility.
THE ETF START-UP FACILITY
11.4 The ETF Start-up Facility is managed, on a trust
basis, by the European Investment Fund (EIF) and makes investments
in venture capital funds established specifically to provide equity
or other forms of risk capital to SMEs. The funds supported are
smaller or newly-established ones, in particular those operating
at a regional level, those focussing on specific industries or
technologies, and those that finance the exploitation of the results
of research and development. Under the new MAP, the ETF Start-up
Facility has been adapted to support the establishment and financing
of SMEs in their start-up phase by including support for specialised
venture capital funds and business incubators.
11.5 The report spells out the terms and notes that
fund managers are required to maximise private-sector participation
and will normally be expected to obtain at least 50% of the fund's
size from private sources.
11.6 As at 31 December 2002, total disbursements
to venture capital funds amounted to 63 million, compared to 50
million at year-end 2001 and 32 million at year-end 2000. By 30
September 2002, the venture capital funds had invested a total
or 221.2 million in 206 SMEs, compared to 184.6 million in 179
SMEs by 31 December 2001. Of the 221.2 million, 18.1 million had
been invested in 11 beneficiary SMEs in the UK. By comparison,
the total amount of private equity and venture capital invested
in the UK by members of the British Venture Capital Association
(BVCA) in 2002 was £4,480 million. Of this, £546 million
was invested in 641 high-tech companies.
11.7 The Minister for Energy, e-Commerce and Postal
Services, Department of Trade and Industry (Mr Stephen Timms)
says that the UK Government welcomes the increased availability
of venture capital, particularly for technology start-ups. However,
in his view, the figure quoted suggests that the ETF Start-up
Facility is likely to have only a marginal impact in the UK.
THE JOINT EUROPEAN VENTURE (JEV)
11.8 This programme aimed to encourage transnational
joint ventures between European SMEs in the European Economic
Area, thereby helping them benefit from the opportunities offered
by the single market. Under the programme, the EU contributed
up to 50% of the expenses of setting up the project and up to
10% of the total investment made, subject to an overall maximum
of 100,000 per project. SMEs which wished to apply for JEV support
had to approach one of the financial intermediaries.
11.9 Demand for JEV was much lower than originally
expected, with the number of intermediaries down from 85 in 2000
to 71 in 2001 and 2002. Of these, only one was UK-based —
the Royal Bank of Scotland. Given the low demand from SMEs for
support for transnational joint ventures in the EU, the Commission
intends to produce an evaluation in a separate document that will
include a proposal on the future of the programme. It appears
that SMEs prefer to create subsidiaries or enter into looser cooperation
agreements when investing in other Member States.
11.10 The Minister comments that the UK Government
supports the principle of the JEV programme as a means of enabling
more SMEs to take full advantage of the internal market. However,
in view of JEV's disappointingly low take-up, its limited job-creation
impact and its poor cost-effectiveness, the Government awaits
with interest the results of the evaluation and any proposals
on the future of this programme.
THE SME GUARANTEE FACILITY
11.11 This facility is intended to stimulate job
creation by increasing the availability of debt finance for SMEs
within the European Union, particularly for those businesses that
would otherwise find it difficult to access loans. It achieves
this by increasing the capacity of guarantee schemes operating
in Member States and relates to both new and existing lending
portfolios. The facility covers part of the losses incurred under
guarantees up to a pre-determined amount and aims mainly to help
companies with up to 100 employees. The approval process with
regard to beneficiary SMEs is the responsibility of the financial
intermediaries which may apply their own criteria for eligibility
depending on their specific loan or guarantee products.
11.12 As at 31 December 2002, the aggregate amount
of SME loans guaranteed under the Facility totalled 9.02 billion
while the use of the budgetary resources by intermediaries amounted
to 155.7 million, a high leverage effect of 158. Compared to
2001, guarantee commitments by the EIF to participating financial
institutions increased by 14.2%, thus maintaining job creation
opportunities that might otherwise have suffered from a lack of
finance. On 31 December 2002, the number of SMEs benefiting from
this facility was 125,164, compared to 92,408 on 31 December 2001.
11.13 According to the Minister, there is only one
UK intermediary — the Prince's Trust. The Trust uses the
Facility for its business start-up programme to support through
soft loans and mentoring disadvantaged young people setting up
businesses. On 30 June 2002 the 5,275 beneficiary SMEs of the
Prince's Trust programme received an average loan amount of 4,000.
Utilisation had reached only 74% of capacity by December 2002,
mainly as a result of the difficult environment for identifying
suitable young entrepreneurs.
11.14 Of the total number of beneficiary SMEs in
the EU, 93% employed up to ten people.
11.15 Under the new MAP, three elements have been
added to the SME Guarantee Facility, as follows:
- micro-credits;
- equity investments; and
- loans to cover IT equipment, software and training
in the area of internet and e-commerce.
11.16 The Minister comments that the UK Government's
Small Firms Loan Guarantee Scheme operates at a national level,
the majority of the UK clearing banks are lenders under the Scheme
and most provide guarantees to a comprehensive range of SMEs.
As the Scheme is demand-led, the EIF early on took the view that
it would be difficult to accommodate it within the SME Guarantee
Facility's additionality principle. However, under the MAP it
is possible that this could now be re-considered and exploratory
discussions have taken place between the EIF and the UK's Small
Business Service. The Minister says that there would appear to
be scope for the UK to take advantage of the guarantees for micro-credits
and discussions have taken place between the Investment and SME
Finance Directorate of the Small Business Service and the EIF
on how this might be done, in conjunction with existing national
support for Community Development and Finance Institutions.
Conclusion
11.17 The unexpectedly low demand for the Joint
European Venture (JEV) programme, in contrast to the SME Guarantee
Facility, suggests insufficient consultation took place before
this programme was launched.
11.18 We clear the document but ask the Minister
to inform us of the outcome of the discussions between the EIF
and the UK's Small Business Service on accommodating the UK's
Small Firms Loan Guarantee Scheme within the EU's SME Guarantee
Facility.
19 Council Decision 98/347/EC. Back
20
ETF stands for European Technology Facility. Back
21
Council Decision 2000/819/EC. Back
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