This report explains how the EIB Group increases access to finance for small businesses and looks for new sources of funding. Small businesses are a key part of Europe’s economy.
Increased access to finance for small and medium-sized enterprises and mid-caps is one of the European Investment Bank Group’s four primary Public Policy Goals, known as the SME PPG. The Group aims to increase financing for small firms and mid-caps by expanding intermediary banks’ capacities, improving financing conditions and diversifying the sources of finance. The EIB Group supports businesses with a wide range of products, including loans, guarantees and securitisation, equity and quasi-equity financing. The EIB Group’s assistance for small businesses and mid-caps contributes to the objectives of the Capital Market Union, an initiative aimed at further integrating the capital markets of all European Union countries and providing new sources of funding.
Small businesses and mid-caps are a key part of the European Union’s economy. They drive economic development, innovation and employment. But they often have difficulties finding financing. Although, access to finance is becoming easier for small businesses, there are significant differences among different countries and sectors. The European Union has been working hard for a long time to foster entrepreneurship, encourage the creation of new companies and help small businesses grow and it is especially interested lately in making it easier for Europe’s innovative firms to get financing.
In 2018, the EIB Group provided €23.3 billion in financing to financial intermediaries, or 36% of its total lending. This financing to financial intermediaries supported an estimated €118 billion in investment by small companies. In 2018, through its intermediaries the EIB Group supported about 374,000 companies sustaining some five million jobs.
Most of the EIB Group’s financing to small businesses is done through intermediaries. Loans by intermediaries accounted for the largest share of small business financing (58%), followed by guarantees (25%) and equity (17%). In terms of investment supported, equity accounted for 40%, followed by lending (32%) and guarantees (28%).
To support small businesses, the EIB Group uses a wide network of commercial banks, National Promotional Banks and Institutions, leasing companies, venture capital and private equity funds, angel investors and other providers. We especially target regions where access to finance is an obstacle to economic growth.
The Group supports companies throughout their development stages. EIB intermediated lending has typically supported more established small businesses and mid-caps, while still reaching out to microenterprises. The European Investment Fund focuses on enterprises in earlier stages of growth.
The Group also provides direct financing to mid-caps through Innovfin, the EU finance initiative for innovators, and we offer venture debt financing under the European Growth Finance Facility, backed by the European Fund for Strategic Investments (EFSI).
With support from EFSI, the EIB Group has substantially enhanced its support for small businesses and mid-caps. EFSI operations represented nearly 40% of SME PPG signatures in 2018.
As in previous years, in 2019 the Group is intervening in regions that are economically constrained and require more investment and financing tools. The EIB Group will continue to support business innovation, especially in digitalisation, energy efficiency and climate action.
The EIB Group’s financing for small businesses and mid-caps is also supported by advisory and technical assistance from the European Investment Advisory Hub. The Hub provides this support directly in the case of mid-caps, especially for innovative companies. It also works indirectly via its local partnership network of National Promotional Banks and Institutions. In addition, it has a dedicated programme of support with the European Bank for Reconstruction and Development in Romania, Bulgaria, Croatia and Greece. The Advisory Hub is a single access point to various types of advisory and technical assistance services.
The Group signed 21 billion in new operations under the SME PPG, supporting 110 billion in investments.
EIB Group deals were signed mainly via:
Lending through intermediaries: 11.6 billion, supporting 32.9 billion in small business and mid-cap investment.
The Group’s intermediated lending lowers the borrowing costs and reduces the tenor limitations for small businesses, creating a level playing field for small companies across different EU countries.
In 2018, the EIB assessed the impact of its intermediated lending on the financial performance of projects from 2008 to 2014 in Central, Eastern and Southern European countries. The assessment found that the financing had a significant positive effect during the crisis years on profit and employment. Firms receiving EIB lending employed 8% to 14% more staff than their peers that did not receive EIB financing. A more comprehensive analysis of other European markets completed in 2019 confirmed positive results on small businesses employment, growth and investment.
Portfolio guarantees and securitisation: 5.6 billion, supporting 31.7 billion in small business and mid-cap investment.
Part of the reason small businesses struggle to get financing is that there are increased requirements for collateral. The EIB Group provides guarantee and counter-guarantee products to help small businesses and mid-caps, which reduces the impact of this credit rationing and increased collateral requirements. The EIF provides multiple guarantee products and other instruments that help innovative companies, encourage social innovation, target micro-enterprises and help cultural activities and creative people.
In 2018, the EIF published an impact assessment of guaranteed loans from 2002 to 2016. Focusing on Benelux, the Nordic countries and Italy, the study found an additional 20% asset growth, 15% sales growth, and 17% employment growth, compared to similar firms that did not benefit from such guarantees. Some companies also experienced lower default rates.
Equity: 3.7 billion, supporting 45 billion in small business and mid-cap investment.
As a fund-of-fund manager, the EIF has become the largest institutional investor in Europe, providing substantial funds in the venture capital, lower mid-market and growth segments of the private equity sector. The EIF also helps niche and nascent markets, such as business angels, technology transfers, venture debt funds, social impact investments and granular and small debt funds. The EIF makes commitments to new fundraising plans, supports new and established management teams and seeks to develop a European eco-system for venture capital. This diversifies the sources of finance for small businesses and contributes to the goals of the Capital Market Union.
The EIB makes direct quasi-equity (venture debt) investments under the European Growth Finance Facility, an EFSI financing instrument targeting highly innovative companies that have trouble finding non-dilutive, risk-absorbing growth capital.
Developing local private enterprises is a major driver of economic growth, revenue generation and international competitiveness, so this is a high-level objective of the EIB Group in countries outside the European Union. In 2018, the EIB Group signed €2.3 billion in financing outside the Union, supporting €8.3 billion in small business and mid-cap investment.
Microfinance is a powerful tool to expand access to finance to individuals and very small enterprises, groups that are often excluded from traditional financial services. Microfinance creates jobs and sustains them, while filling a gap in the supply of financial services. The EIB has extensive microfinance activities in African, Caribbean and Pacific countries and the EU’s Southern Neighbourhood. The Bank’s microfinance portfolio consists of loans and equity investments to local financial institutions, as well as participation in microfinance investment vehicles. In 2018, the Bank’s microfinance operations adopted the EIB Group’s new strategy for gender equality by implementing operations targeting women’s entrepreneurship.