With the economic downturn causing capital to freeze up, The European Investment Bank (EIB), via Britain's High Street banks, will make £4bn of funding available to small and medium-sized firms (SMEs). This will take the form of £1bn in loans per year for four years.
The EIB makes the terms of the loan more favourable to SMEs, as the EIB can borrow funds from money markets on favourable terms and pass on the savings in the loans that it grants.
Who can get a loan? What can it be used for?
Any independent businesses (businesses cannot be subsidiaries of larger companies) with up to 250 workers can apply for these loans, which can be used for investments or expenditures that help the SME grow. This can include spending on:
- Research and development
- Acquiring patents
- Buying another SME to keep that business afloat
- Building up or taking over distribution networks
However, company takeovers, which are considered purely financial transactions, are prohibited along with the purchase of land for property development. These EIB loans cannot be used in the following sectors: gambling, tobacco, arms, animal testing, morally or ethically controversial sectors (e.g. human cloning) and environmentally harmful activities whose impact cannot be offset or mitigated.
What are the terms of the loan?
The loans will range in amount, from SMEs that need money for smaller investments to businesses that are engaging in costly projects. The terms of the loans will range from two to 12 years, depending on the economic life of the project, and the maximum loan amount will be £9.8m.
How can a SME apply for a loan?
You will need to apply at a commercial bank for the loan. Although the EIB is supplying the money, it will be the responsibility of High Street banks to evaluate loan applications and decide whether or not to grant a loan.
According to the UK Federation of Small Businesses national chairman, John Wright, only one major bank - Barclays - is currently providing EIB financing. Since many other SMEs use one of the three other major banks, Wright says he hopes to see the money "filter down to small businesses."
What about owners of very small businesses?
If you're the owner of a very small enterprise, the EIB and the European Commission are working together to establish a pan-European microcredit fund for very small businesses. This fund will grant loans to very small enterprises through approximately 30 European microfinance institutions.