On 30 June 2016, the European Commission and the European Investment Fund (EIF) launched a €121 million guarantee initiative, the “Cultural and Creative Sectors Guarantee Facility”, to support small and medium enterprises (SMEs) in the cultural and creative sectors via financial institutions.
The new guarantee facility will be offered through “Creative Europe” (see here), a 7-year programme (2014-2020) aimed at supporting the cultural and creative sectors. The guarantee facility will be managed by the EIF on behalf of the European Commission. SMEs in the cultural and creative sectors, established and operating in EU Member States, Iceland and Norway are eligible. The facility is not accessible to other countries (for example, candidate countries, potential candidate countries, neighbourhood countries). Relevant sectors include architecture, archives and libraries, artistic crafts, audiovisual, cultural heritage, design, festivals, music, performing arts, publishing, radio and visual arts.
Historically, access to finance in the cultural and creative sectors has been challenging for SMEs. Primarily this has been caused by the intangible nature of the assets and collateral, the size of the market and demand uncertainty. In addition, due to the level of specialist expertise required to evaluate risks in these specific sectors, there has been a degree of reluctance on the part of financial intermediaries to offer finance. The European Commission and the EIF have set up the guarantee facility to help address these difficulties.
According to the European Commission, the guarantee facility will:
- Provide guarantees and counter-guarantees to banks dealing with cultural and creative SMEs thereby enabling them easier access to bank credits;
- Provide expertise and capacity building to the financial institutions;
- Increase the number of financial institutions willing to work with cultural and creative SMEs;
- Maximise the European geographical diversification of financial institutions willing to work with cultural and creative SMEs; and
- Ensure the instrument can benefit the largest number of culture and creative sectors.
To encourage participation, the European Commission has committed to partially cover financial intermediaries’ potential losses relating to unpaid principal and interest up to a capped amount (up to 70% for individual loans losses and up to 25% for portfolios) when they engage with the cultural and creative sectors. This will provide sufficient comfort to the financial intermediaries to encourage them to lend and will enable them to build diversified portfolios of loans.
Needless to say, the initiative presents huge benefits to qualifying SMEs. Creative Europe has estimated that the facility should help to leverage over €600 million in additional lending and has suggested that at least ten thousand SMEs operating in these sectors are likely to directly benefit from the guarantee facility, with many more benefitting indirectly.
The EIF is expected to publish a call for expression of interest later this month, to which eligible financial intermediaries will be able to apply. Eligible financial intermediaries will include:
- Financial or credit institutions, leasing companies or loan funds duly authorised to carry out lending or leasing activities in accordance with applicable laws and regulations, established and operating in a participating country.
- Guarantee institutions or other financial or credit institutions duly authorised, if applicable, to issue guarantees in accordance with the applicable laws and legislations, established and operating in a participating country.
Once applications have been made, a selection process will commence and agreements will then be signed between the EIF and successful financial intermediaries which will allow them to build and launch their portfolios. SMEs will then be able to apply for a loan or a guarantee by approaching the financial intermediary operating in its market. Financial intermediaries will be able to take part in the scheme at any time until 2020 and it is thought that by the end of this year, relevant SMEs will be able to apply for finance under this facility.
The opportunities presented by this new guarantee facility are significant. Any SMEs that operate in the cultural and creative sectors in the EU, Iceland and Norway and who participate in the “Creative Europe” programme will be able to access finance in the future which previously would not have been available to them. This will directly benefit the art market operating in these jurisdictions.
What this facility will mean for the UK following the referendum is not clear at this stage and will remain uncertain until the terms of Brexit are fully negotiated. It would be a significant loss for the British art market if the results of Brexit mean that facilities such as this one are no longer available at a time when they are needed more than ever.
To find out more information on the facility please see here.
By Pierre Valentin and Rose Guest
Published 22 July 2016