Struggling small firms â?¬30 billion lifeline

The European Investment Bank (EIB) has launched a €30 billion fund to help small firms in the EU which are struggling to access bank finance.

Euros

The EIB has earmarked €30 billion to be loaned exclusively to SMEs in the EU via commercial banks between now and 2011. The funding comes in response to European leaders’ calls to give more support to small businesses during the credit crunch.

The EU’s finance ministers had planned to release the first €15 billion gradually over the next two years, but Prime Minister Gordon Brown led the call at an emergency summit in Paris for immediate access. His demands were endorsed and the first €15 billion will become available over the next few weeks. An EIB spokeswoman said:

“The idea is to encourage banks in financial turmoil to lend more to SMEs. We are lending money to banks to lend more easily to SMEs, under better conditions.”

“Our conditions say the banks can lend for all kinds of investments, tangible or intangible,” she added. “This is a new thing as we used to support bigger SMEs indirectly and now we can finance smaller SMEs with smaller investments.”

Any firm with fewer than 250 employees and owning more than 75% of its equity is eligible to apply for funds.

Commercial banks will be responsible for evaluating loan applications. Loans will typically be obtainable for between two and 12 years, although the length of the loan depends on the economic life of the project financed.

The EIB has the best possible rating on the capital markets, and can therefore borrow on favourable terms that can then be passed on to SMEs.

The Federation of Small Businesses (FSB) welcomed the funding, but stated that the EIB should amend its lending criteria to include short–term finance requests. FSB policy advisor Priyen Patel said:

“The money is aimed at businesses with long–term business plans already in place — for example, those midway through building new offices or employing new staff. It isn’t for those businesses that need short–term financial solutions to stay afloat during the next six months or 12 months.”

“The EIB should amend its lending criteria, so that firms that need short–term finance can access it. Small businesses will not generally have written details of their long–term plans, so that needs to be considered by the EIB. We don’t think it will be a great help unless the EIB amends some of its criteria.” he said

For more information about the fund and to access a list of the commercial banks where it will be available, visit the EIB website.

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