Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid (OJ L 352, 24.12.2013, p. 1).
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Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (notified under document number C(2003) 1422) (OJ L 124, 20.5.2003, p. 36).
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Enterprise with less than 250 employees and having a turnover of less than EUR 50 million or total assets less than EUR 43 million; also not belonging to a group exceeding such thresholds. According to the Commission Recommendation, ‘an enterprise is considered to be any entity engaged in an economic activity, irrespective of its legal form’.
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The following economic sectors are together referred to as the ‘restricted sectors’.
- (a)
illegal economic activities: any production, trade or other activity, which is illegal under the laws or regulations of the home jurisdiction for such production, trade or activity.
- (b)
Tobacco and distilled alcoholic beverages. The production of and trade in tobacco and distilled alcoholic beverages and related products.
- (c)
Production of and trade in weapons and ammunition: the financing of the production of and trade in weapons and ammunition of any kind. This restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies.
- (d)
Casinos. Casinos and equivalent enterprises.
- (e)
IT sector restrictions. Research, development or technical applications relating to electronic data programs or solutions, which (i) aim specifically at: (a) supporting any activity included in the Restricted Sectors referred to a to d above; (b) internet gambling and online casinos; or (c) pornography, or which (ii) are intended to enable to illegally (a) enter into electronic data networks; or (b) download electronic data.
- (f)
Life science sector restrictions. When providing support to the financing of the research, development or technical applications relating to: (i) human cloning for research or therapeutic purposes; or (ii) Genetically Modified Organisms (GMOs).
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Structure of the financial instrument | The Risk Sharing loan (RS loan or financial instrument) shall take the form of a loan fund to be set up by a financial intermediary with contributions from the programme and the financial intermediary to finance a portfolio of newly originated loans, to the exclusion of the refinancing of existing loans.
The Risk Sharing loan shall be made available in the framework of an operation which is part of the priority axis defined in the programme F2co-funded by the relevant ESIFstructure of the financial instrument and defined in the context of the ex-ante assessment required in Article 37 of Regulation (EU) No 1303/2013.
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Aim of the instrument | The aim of the instrument shall be to:
- 1..
combine resources from the F3ESIF programme and the financial intermediary to support financing to SMEs as referred in Article 37(4) of Regulation (EU) No 1303/2013, and
- 2..
provide SMEs with easier access to finance by providing financial intermediary with a funding contribution and credit risk sharing and thereby offering SMEs more funds at preferential conditions in terms of interest rate reduction and if relevant collateral reduction.
The contribution from the ESIF programme to the financial intermediary shall not crowd out financing available from other private investors or public investors.
The ESIF programme shall provide funding to the financial intermediary in order to build up a portfolio of newly generated loans to SMEs, and in parallel, participate in the losses/defaults and recoveries on the SME loans in this portfolio on a loan by loan basis and in the same proportion as the programme contribution in the instrument.
In the case of fund of funds structure, the fund of funds shall transfer the contribution from the ESIF programme to the financial intermediary.
In addition to the ESIF programme contribution, the fund of funds may provide its own resources which are combined with the financial intermediary resources. The fund of funds shall in this case take the pro-rata part of the risk sharing between the different contributions in the portfolio of loans. State aid rules have to be respected if the resources provided by the fund of funds are State resources.
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State aid implication | The RS Loan shall be designed as a State aid free instrument, i.e. market-conform remuneration for the financial intermediary, full pass-on of financial advantage by the financial intermediary to the final recipients, and the financing provided to the final recipients are under the applicable de minimis Regulation.
(a)
Aid at the level of the financial intermediary and the fund of funds is excluded when:
1.
the financial intermediary and the managing authority or fund of funds bear at any time the losses and benefits in proportion to their contributions (pro-rata) and there is an economically significant participation of the financial intermediary in the Risk Sharing loan, and
2.
The remuneration (i.e. management costs and/or fees) of the financial intermediary and the fund of funds reflects the current market remuneration in comparable situations, which is the case when the latter has been selected through an open, transparent, non-discriminatory and objective selection procedure or if the remuneration is aligned with the Articles 12 and 13 of Delegated Regulation (EU) No 480/2014 and no other advantages are granted by the State. Where the fund of fund only transfers the F4ESIFprogramme contribution to the financial intermediary, and has a public interest mission, and has no commercial activity when implementing the measure, and is not co-investing with its own resources — therefore it is not considered a beneficiary of aid, — it is enough that the fund of fund is not overcompensated, and
3.
The financial advantage of the programme public contribution to the instrument shall be fully passed on to the final recipients in the form of an interest rate reduction. When selecting the financial intermediary, the managing authority shall, in line with the Article 7(2) of Delegated Regulation (EU) No 480/2014, asses the pricing policy and the methodology to pass on the financial advantage to the final recipients.
Where the financial intermediary does not pass on all the financial advantage to the final recipients, the undisbursed public contribution shall be transferred back to the managing authority.
(b)
At the level of the SMEs:
At the SMEs' level, the loan shall comply with the de minimis rules.
For each loan inserted in the portfolio, the financial intermediary shall calculate the GGE by using the following calculation methodology:
Calculation of the GGE = Nominal amount of the loan (EUR) × (Cost of funding (standard practice) + Cost of risk (standard practice) – Any fees charged by the managing authority on the programme contribution to the financial intermediary) × Weighted average life of the loan (Years) × Risk sharing rate.
When the GGE is calculated with the above mentioned formula, for the purpose of the Risk Sharing loan, the requirement as foreseen in Article 4 of the de minimis Regulationf1 is considered to be met. There is no minimum collateral requirement.
A verification mechanism shall ensure that the GGE calculated with the above mentioned formula is not below than the GGE calculated following the Article 4(3)(c) of the de minimis Regulation.
The total amount of aid calculated with the GGE cannot be above EUR 200 000 over a 3 years fiscal period taking into account the cumulation rule for final recipients in the de minimis Regulation.
Technical support grant or another grant provided to the final recipient shall be cumulated with the calculated GGE.
Regarding SMEs in the fisheries and aquaculture sector, the aid shall comply with the relevant rules of the fisheries de minimis Regulation.
For activities F5supported by the EAFRDfunded by support for rural development , general rules apply.
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Lending policy | (a)
Disbursement from the managing authority or fund of funds to the financial intermediary:
Following the signature of a funding agreement between the managing authority and the fund of funds or the financial intermediary, the relevant managing authority transfers public contributions from the programme to the fund of funds or the financial intermediary which places such contributions in a dedicated Risk Sharing loan fund. The transfer shall be in tranches and respect the ceilings of the Article 41 of Regulation (EU) No 1303/2013.
The target lending volume and range of interest rate shall be confirmed within the ex-ante assessment in accordance with Article 37 of Regulation (EU) No 1303/2013and shall be taken into account to determine the nature of the instrument (revolving or non-revolving instrument).
(b)
Origination of a portfolio of new loans:
The financial intermediary shall be required to originate within a pre-determined limited period of time a portfolio of new eligible loans in addition to its current loan activities, partly funded from the disbursed funds under the programme at the risk-sharing rate agreed in the funding agreement.
Eligible loans for SMEs (according to pre-defined eligibility criteria on a loan-by-loan and portfolio level) shall be automatically included in the Portfolio, by way of submitting inclusion notices at least on a quarterly basis.
The financial intermediary shall implement a consistent lending policy, especially regarding portfolio diversification, enabling a sound credit portfolio management and risk diversification, while complying with the applicable industry standards and while remaining aligned with the managing authority's financial interests and policy objectives.
The identification, selection, due diligence, documentation and execution of the loans to final recipients shall be performed by the financial intermediary in accordance with its standard procedures and in accordance with the principles set out in the relevant funding agreement.
(c)
Re-use of resources paid back to financial instrument:
Resources paid back to the financial instrument shall be either reused within the same financial instrument (revolving within the same financial instrument) or after being paid back to the managing authority or the fund of funds they shall be used in accordance with Article 44 of Regulation (EU) No 1303/2013.
When revolving within the same financial instrument, as a matter of principle, the amounts that are attributable to F6the support of the ESIFsupport for rural development and support under Regulation 508/2014 and that are reimbursed and/or recovered by the financial intermediary from loans to final recipients within the time framework for investments shall be made available for new use within the same financial instrument. This revolving approach as referred at Articles 44 and 45 of Regulation (EU) No 1303/2013 shall be included in the funding agreement.
Alternatively, if the managing authority or the fund of funds is directly repaid, the repayments shall occur regularly mirroring (i) principal repayments (on a pro rata basis on the basis of the risk sharing rate) (ii) any recovered amounts and losses deductions (according to the risk sharing rate), of the SME loans and (iii) any interest rate payments. These resources have to be used in accordance with Articles 44 and 45 of Regulation (EU) No 1303/2013.
(d)
Loss recoveries:
The financial intermediary shall take recovery actions in relation to each defaulted SME loan financed by the financial instrument in accordance with its internal guidelines and procedures.
Amounts recovered (net of recovery and foreclosure costs, if any) by the financial intermediary shall be allocated pro-rata to the risk-sharing between the financial intermediary and the managing authority or the fund of funds.
(e)
Others:
Interest and other gains generated by support F7from the ESI Fundsfor rural development and support under Regulation 508/2014 to financial instrument shall be used as referred in Article 43 of Regulation (EU) No 1303/2013.
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Pricing policy | When proposing its pricing, the financial intermediary shall present a pricing policy and the methodology to ensure the full pass on of the financial advantage of the programme public contribution to the eligible SMEs. The pricing policy and the methodology shall include the following elements:
- (1)
the interest rate on the financial intermediary participation is set at market basis (i.e. according to the financial intermediary own policy),
- (2)
the overall interest rate, to be charged on loans to the eligible SMEs included in the portfolio, must be reduced proportionally to the allocation provided by the public contribution of the programme. This reduction shall take into account the fees that the managing authority might charge on the programme contribution.
- (3)
The GGE calculation as presented in the State aid section shall be applied on each loan included in the Portfolio.
- (4)
The pricing policy and the methodology shall remain constant during the eligibility period.
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Programme contribution to financial instrument: amount and rate (product details) | The actual risk sharing rate, programme public contribution and interest rate on loans shall be based on the ex-ante assessment findings and shall be such as to ensure that the benefit to the final recipients complies with the de minimis rule.
The size of the target portfolio Risk Sharing loan shall be confirmed within the ex-ante assessment justifying the support to the financial instrument (Article 37 of Regulation (EU) No 1303/2013) and take into account the revolving approach of the instrument (if applicable). The composition of the targeted portfolio of loans shall be defined in a way to ensure diversification of risk.
The RS loan allocation and the risk-sharing rate must be set in order to fill the gap evaluated within the ex-ante assessment, but in any case must comply with the conditions laid down in this term sheet.
The risk sharing rate agreed with the financial intermediary shall define for each eligible loan included in the portfolio, the portion of the eligible loan principal amount financed by the programme.
The risk-sharing rate agreed with the financial intermediary determines the exposure of the losses which are to be covered by the financial intermediary and by the programme contribution accordingly.
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Programme contribution to financial instrument (activities) | The portfolio funded by the RS loan instrument shall include only newly originated loans provided to SMEs, to the exclusion of the refinancing of existing loans. The eligibility criteria for inclusion in the portfolio are determined pursuant to F8Unionnational law (e.g. Regulation (EU) No 1303/2013 and Fund-specific rules), programme, national eligibility rules, and with the financial intermediary with the aim of reaching a large number of final recipients and achieving sufficient portfolio diversification. The financial intermediary shall have a reasonable estimation of the portfolio risk profile. These criteria shall reflect market conditions and practices in the relevant F9Member State or regionconstituent nation. |
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Managing Authority's liability | The managing authority's liability in relation to the financial instrument shall be as set out in Article 6 of Delegated Regulation (EU) No 480/2014.
The losses covered are principal amounts due, payable and outstanding and standard interest (but excluding late payment fees and any other costs and expenses).
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Duration | The lending period of the financial instrument shall be set in order to ensure that the programme contribution as referred in Article 42 of Regulation (EU) No 1303/2013 is used for loans disbursed to final recipients no later than the 31 December 2023.
The typical duration to create the portfolio of loans is recommended to be up to 4 years from the date of signature of the funding agreement (between the managing authority or fund of funds and the financial intermediary).
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Lending and risk-sharing at financial intermediary level (alignment of interest) | Alignment of interest between the managing authority and the financial intermediary shall be achieved through:
Performance fees as provided by Articles 12 and 13 of the Delegated Regulation (EU) No 480/2014.
In addition to the programme contribution, the financial intermediary shall contribute under local market conditions to the financing of at least 25 % of the total financing commitment for lending to SMEs within the RS loan instrument.
The losses and recoveries shall impact pro-rata the financial intermediary and the managing authority within their respective liability according to the risk-sharing rate.
The expected risk-sharing rate shall be determined based on the ex-ante assessment findings justifying the support to the financial instrument.
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Eligible Financial Intermediaries | Public and private bodies established in a F10Member Stateconstituent nation which shall be legally authorised to provide loans to enterprises operating in the jurisdiction of the programme which contributes to the financial instrument. Such bodies are financial institutions, and, as appropriate, microfinance institutions or any other institution authorised to provide loans. |
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Final recipients eligibility | The final recipients shall be eligible under F11EU and national law, the relevant programme and funding agreement. The following eligibility criteria shall be met at the date of the signature of the loan:
- (a)
shall be a micro, small and medium enterprise (SMEs (including individual entrepreneurs/self-employed persons) as defined in Commission Recommendation 2003/361/ECf2f3.
- (b)
shall not be a SME active in the sectors defined in point (d) – (f) of Article 1 of the de minimis Regulation.
- (c)
shall not be part of on one or more restricted sectorsf4.
- (d)
shall not be a firm in difficulty as defined by State aid rules.
- (e)
shall not be delinquent or in default in respect of any other loan or lease either granted by the financial intermediary or by another financial institution pursuant to checks made in accordance with the financial intermediary internal guidelines and standard credit policy.
In addition, at the time of the investment and during the reimbursement of the loan, final recipients shall have a registered place of business in a F12Member Stateconstituent nation and the economic activity for which the loan was disbursed shall be located in the relevant F13Member State and Region/Jurisdictionconstituent nationF14of the ESIF programme.
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Characteristics of the product for the final recipients | The financial intermediary shall deliver to final recipients the loans that contribute to the objective of the programme and that are co-financed by the programme under the RS loan instrument. Their terms shall be grounded on the ex-ante assessment referred to in Article 37 of Regulation (EU) No 1303/2013.
The loans shall be used exclusively for the following permitted purposes:
- (a)
investments in tangible and intangible assets, including transfer of proprietary rights in enterprises provided that such transfer takes place between independent investors.
- (b)
working capital related to development or expansion activities that are ancillary (and linked) to activities referred to in (a) above (which ancillary nature shall be evidenced, inter alia, by the business plan of the SME and the amount of the financing).
The following eligibility criteria shall be met at all times by the loans included in the portfolio:
- (c)
Loans shall be newly originated, to the exclusion of the refinancing of existing loans.
- (d)
The principal amount of a loan included in the RS loan portfolio (i) shall be up to EUR 1 000 000 based on the ex-ante assessment and (ii) shall be provided under such conditions that would not cause the GGE with respect to each final recipient to exceed EUR 200 000 (or EUR 100 000 in the road freight transport and EUR 30 000 in the fishery and aquaculture sectors) over any period of three fiscal years; eligible SMEs could potentially apply more than once for loans allocated in the context of this financial instrument provided that the above-mentioned GGE limit is fully respected.
- (e)
Loans shall provide financing for one or more of the permitted purposes in EUR and/or national currency in the relevant jurisdiction and, as the case may be, in any other currency.
- (f)
Loans shall not be in the form of mezzanine loans, subordinated debt or quasi equity.
- (g)
Loans shall not be in the form of revolving credit lines.
- (h)
Loans shall have a repayment schedule, including regular amortising and/or bullet payments.
- (i)
Loans shall not finance pure financial activities or real estate development when undertaken as a financial investment activity and shall not finance the provision of consumer finance.
- (j)
Loans shall have a minimum maturity of 12 months including the relevant grace period (if any) and a maximum maturity of up to 120 months.
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Reporting and targeted results | Financial intermediaries shall provide the managing authority or fund of funds with at least quarterly information in a standardised form and scope.
The report shall include all the relevant elements for the managing authority to fulfil the conditions of Article 46 of Regulation (EU) No 1303/2013.
F15Member StatesThe relevant authority shall also fulfil their reporting obligations pursuant to the de minimis Regulation.
Indicators must be aligned with the specific objectives of the relevant priority of the F16ESIF programme financing the financial instrument and on the expected results of the ex-ante assessment. They shall be measured and reported at least quarterly for the RS loan instrument and aligned as a minimum with the regulation requirements. In addition to the common indicators of the priority axis of the ESIF programme (employment increase, number of SMEs, …) other indicators are:
Numbers of loans/projects financed
Amounts of loans financed
Defaults (numbers and amounts)
Resources repaid and gains
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Evaluation of the economic benefit of the programme contribution | The financial intermediary shall reduce the overall effective interest rate (and collateral policy where appropriate) charged to the final recipients under each eligible loan included in the portfolio reflecting the favourable funding and risk sharing conditions of the RS loan.
The entire financial advantage of the programme public contribution to the instrument shall be transferred to the final recipients in the form of an interest rate reduction. The financial intermediary shall monitor and report on the GGE for final recipients as referred in the State aid section. This principle shall be reflected in the funding agreement between the managing authority or fund of funds and the financial intermediary.
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