COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 30.10.1995 
COM(95) 485 final 
SECOND REPORT 
FROM THE COMMISSION 
relative to the implementation of the Decision regarding 
the provision of Community interest subsidies 
on loans for small and medium-sized enterprises 
extended by the European Investment Bank under its temporary lending facility 
(the SME Facility) 

SUMMARY 
1. INTRODUCTION 
2. LEGAL FRAMEWORK 
3. DESCRIPTION OF THE FUNCTIONING OF THE SME FACILITY 
3.1. EIB global loans 
3.2. The role of national agents 
3.3. Agreements with intermediaries and agents 
3.4 Characteristics of the subsidized SME loans 
3.5. Characteristics of the subsidy 
3.6. Incentives for early job creation 
3.7. Improving the take-up of loans 
3.8 Priority for small SMEs 
3.9. State aid rules 
3.10. Control and supervision 
3.11. Promotion of the SME Facility 
4. IMPLEMENTATION 
4.1. Planned job creation 
4.2. Take-up of loans from the Facility 
4.3. Priority for small SMEs 
5. BUDGETARY ASPECTS 
ANNEXES : 5 
1. INTRODUCTION 
The present report has been established in the framework of Council decision 94/217/EC of 
19 April 1994 0), relative to the provision of Community interest subsidies on loans for small 
and medium-sized enterprises extended by the European Investment Bank under its temporary 
lending facility (the SME Facility). The report constitutes an update of the first one, which 
was made available by the Commission on 19 October 1994 (COM(94)434). 
The SME facility was established at the invitation of the Copenhagen European Council (21-
22 June 1993), which invited the EIB to increase the size of its temporary lending facility by 3 
bn Ecu, of which 1 bn Ecu would be allocated to the strengthening of the competitiveness of 
European small and medium-sized enterprises. The Ecofin Council was invited to examine 
how the part of appropriations available for SMEs could benefit from interest rate subsidies 
linked to employment creation. 
2. LEGAL FRAMEWORK 
Following the introduction of a legislative proposal by the Commission (2), and the opinion of 
Parliament of 24 February 1994 (3), the legal base for extending Community subsidies was 
enacted by the Council on 19 April 1994. This Decision specifies that the interest subsidies 
shall be: 
linked to Ecu 1000 million of EIB loans to SMEs in the Community; 
restricted to investment projects involving the creation of employment; 
fixed at 200 basis points (2 %); 
extended for a period of 5 years to the beneficiaries of the loans. 
The decision also indicates that the facility shall be administered by the EIB on behalf of the 
Community and that the detailed arrangements for implementing the interest subsidy 
mechanism shall be laid down in a cooperation agreement between the Commission and the 
EIB. This agreement was signed in Luxembourg on 14 June 1994. In December 1994, the 
Commission and the Bank agreed the modalities for the enlargement of the SME Facility to 
enterprises from the three acceding Member States (Austria, Sweden, Finland) from 1 January 
1995 onwards. In July 1995, the Commission and the Bank also agreed to extend the Facility 
to the end of 1995 and to include specific provisions regarding the re-allocation of unused 
shares. 
C) O.J. L107 of 28.04.94, p. 57. Article 3 of the Decision specifies that the Commission shall send to 
the European Parliament and the Council a yearly report evaluating the implementation of the 
Decision. 
(2) COM(93)332 of 9.07.93, subsequently amended by COM(93)577 of 16.11.93 (O.J. C10 of 
14.01.94, p.13>. 
(3) O.J. C114 of 25.04.94. 
3. DESCRIPTION OF THE FUNCTIONING OF THE SME FACILITY 
3.1. EIB global loans 
The largest part of EIB lending (83 % of operations within the Union in 1994) to projects 
takes the form of direct loans, whereby loan applications are appraised by the Bank's own 
staff. Direct lending is generally practiced for operations exceeding a certain size (e.g. 
infrastructure or larger industrial projects). 
For smaller loans, and SME loans in particular, the Bank has recourse to global lending 
procedures, whereby framework agreements are signed with various financial intermediaries 
operating in the Member States. These intermediaries are then entitled to draw upon EIB 
resources up to certain ceilings for the purpose of extending subloans to projects which are in 
conformity with the rules and conditions laid down in the framework agreement. The 
financial intermediaries carry out the project appraisal (subject to criteria previously agreed 
upon with the Bank and to subsequent EIB approval) and handle all relations with the 
beneficiaries. The intermediaries are furthermore responsible vis-à-vis the Bank for the full 
and timely repayment of the global resources on-lent to the final beneficiaries. In the context 
of the SME Facility, the role of the financial intermediaries is largely comparable as they will 
assess all individual applications and decide whether they are eligible for subloans. 
3.2. The role of national agents 
In most Member States, the management of the interest subsidies has been entrusted to a 
single national agent per country. These agents act under the Bank's supervision and process 
all requests for subsidies within a single country; the final beneficiaries however have no 
direct contacts or links with the agent in question as the latter receive all the necessary 
information through the financial intermediaries. In some countries, the agent can also be an 
intermediary. 
The agents ensure that approved applications for subsidies are registered and processed in 
sequence on a "first come, first served" basis. They are also responsible for the processing 
and verification of the evidence which the beneficiaries are invited to submit in relation to 
employment creation, as well as for the actual payment (and whenever needed the recovery) 
of the subsidy. The agents therefore play an important role in ensuring that potential and 
actual beneficiaries are treated in a uniform way and that all administrative procedures linked 
to the verification and payment of the subsidy requests are handled in a timely and consistent 
manner. 
3.3. Agreements with intermediaries and agents 
As soon as the legal framework for extending Community subsidies was in place, the Bank 
has started signing the necessary agreements with financial intermediaries, either by amending 
global lending arrangements which were already in existence or otherwise by signing new 
agreements. 
The Bank has appointed the national agent for each Member State after consultation with 
national authorities. Where no agent has been appointed, the Bank assumes this role. The list 
of agents and intermediaries is provided in annex 1. Each agent has been assigned an initial 
share of the total facility so as to allow him to start operations; a subsequent (and final) 
allocation has been assigned in the course of April 1995 on the basis of the actual 
commitments on the first tranche. 
3.4. Characteristics of the subsidized SME loans 
The subsidized subloans (SME loans) extended by the financial intermediaries to the 
beneficiaries are limited to 30.000 Ecu times the number of jobs created. If the loan request 
exceeds this maximum amount (e.g. if 200.000 Ecus of loans are applied for but only 5 new 
jobs are created), the loan amount additional to the ceiling imposed by the number of jobs 
created (50.000 Ecus) is unsubsidized. 
Subsidized loans have a maturity of at least 5 years; voluntary repayment is not allowed 
during the first 5 years (except upon repayment of the subsidy). The loans cannot be 
combined with other loans at reduced rates offered by the EIB under other agreements or with 
ECSC loans. No restriction is imposed on the loan currency or on the repayment 
characteristics (repayment schedule, grace period, ...). Loans can be either fixed or floating 
rate. 
3.5. Characteristics of the subsidy 
The Council Decision sets the subsidy rate at two percentage points. As the loans allocations 
to SMEs can be expressed in various currencies and as the loans can also have different 
repayment schedules (depending on the maturity, the length of the grace period, etc.), the 
actual value of the subsidy could differ between beneficiaries, even for an identical loan size. 
In order to ensure fair and similar treatment of all beneficiaries, the interest subsidy is 
therefore calculated and paid on the basis of a notional 5 year bullet loan in Ecu. For this type 
of loan, an interest subsidy of 2 % per annum for a total of 5 years corresponds in total to 10 
% of the SME loan amount (i.e. 3.000 Ecus per job). 
3.6. Incentives for early job creation 
In view of the objectives of the SME facility (employment creation, sustainment of growth 
through productive investment), special incentives are offered to applicants so as to encourage 
early job creation and rapid execution of investment plans. Firstly, the applications for 
subsidized loans from the SME Facility must be received until a certain deadline date 
(initially set at 31 July 1995, subsequently postponed to 15 December 1995). In addition, the 
total amount of interest subsidies (i.e. 3000 Ecus per extra job) is made available to the 
beneficiaries in a single payment, as soon as the following conditions relating to the 
investment and the creation of jobs have been met: 
the SME loan has been effectively disbursed; 
the first interest payment has come due; 
the new jobs have been in place for at least 6 continuous months; 
the evidence relative to these conditions has been presented to the national agent 
(through the intermediary). 
While applicants have a clear incentive to go ahead as soon as possible with their planned 
recruitments, experience shows that the creation of new employment may take considerable 
time (e.g. because the jobs are linked to the implementation of an extensive investment 
programme). Applicants have therefore some flexibility regarding the timing for introducing 
their requests for the subsidy. In any event, jobs must be created no later than 31 December 
1996. 
Applicants creating less jobs than originally applied for (i.e. less than the number stated in the 
loan application), only receive subsidies for the jobs effectively created. In the opposite case 
(more jobs created than originally envisaged), the subsidies are only paid in relation to the 
number of jobs indicated in the application. 
3.7 Improving the take-up of loans 
In order to avoid that subsidies available under the present mechanism are ineffectively or 
only partially used, two specific provisions exist as regards the re-allocation of unused credits. 
Each of these redistribution mechanisms is based on the reserve lists, which national agents 
are allowed to constitute if strong demand exists in their country for loans from the Facility. 
A first re-allocation mechanism will operate across countries. It will allow for the 
apportioning of any indicative shares which are still unallocated by 15 December 1995 in 
favour of applicants on the reserve lists. This one-time redistribution will occur on the basis 
and in the sequence of the dated application record maintained by the national agents. 
The second type of re-allocation will occur on a continuous basis and exclusively among 
applicants within the same country. Applicants on the reserve list, who have satisfied ail the 
necessary conditions regarding job creation, hereby gain the possibility to receive the 
subsidies which had initially been set aside for other applicants, in particular when the latter 
appear to have overestimated the number of jobs which they would be able to create within 
the imposed time frame. 
3.8. Priority for small SMEs 
The EIB's customary global lending arrangements with its financial intermediaries define 
SMEs as enterprises with net fixed assets not exceeding 75 Mecus, less than 500 employees 
and not more than one third of the equity owned by a company which is not an SME. In the 
framework of the SME facility, the agents and intermediaries have been asked to put special 
emphasis on smaller enterprises, particularly the ones having not more than 250 employees, 
and either a turnover not exceeding 20 Mecus or total assets not exceeding 10 Mecus. 
In order to favour these smaller enterprises, at least 60 % of the number of beneficiaries of 
subsidized loans should belong to this category of enterprises. In addition, the size of the 
SME loans to enterprises of this category is unrestricted, while subsidized loans to larger 
SMEs are limited to 810.000 Ecus (corresponding to the creation of 27 jobs). 
3.9. State aid rules 
The SME Facility is compatible with state aid rules applying in the Member States and 
complies with the Community rules for accelerated clearance 0), which specify limitations on 
the amount of aid which can be granted, notably in relation to the total size of the investment 
cost, the amount of aid per job created, etc. In view of the relatively limited amounts of aid 
granted, administrative controls in relation to state aid can thus be kept to a strict minimum. 
3.10. Control and supervision 
The agents verify the entitlement of each beneficiary to its respective subsidy on the basis of 
the declarations made by intermediaries and beneficiaries and agreement of the EIB that its 
criteria are satisfied. In addition, besides the usual monitoring of its global loans, the Bank 
will also carry out sample checks on the documentary evidence presented in relation to the 
requests for subsidy payments. In the event that documents presented or statements made by 
a beneficiary are materially incorrect or misleading, particularly in connection with elements 
allowing the verification of employment creation, the payment of subsidies will be cancelled 
and the beneficiary will be required to repay to the intermediary institution the corresponding 
amounts received. The Bank has made appropriate arrangements with the agents and 
intermediaries to allow the Court of Auditors to exercise its mission and to verify the 
regularity of the interest subsidy payments. 
3.11. Promotion of the SME Facility 
The promotion and success of the SME Facility depends to a considerable extent on the wide 
availability of information about the existence and operation of the SME Facility, particularly 
among potential beneficiaries. 
The Commission and the EIB have devoted special attention to this aspect and have prepared 
an information brochure, summarizing the purpose and operation of the interest subsidy 
mechanism, as well as the list of intermediaries to whom applications should be addressed. 
The brochure is available in all Community languages and has been distributed through the 
network of financial intermediaries taking part in the mechanism. In addition, the Euro Info 
Centres have been invited to play an active role in disseminating information about the 
Facility and the modalities for taking part in it. 
H) Communication to the Member States on the accelerated clearance of aid schemes for SMEs and 
of amendments of existing schemes (92/C213/03 of 02.07.92); O.J. C213 of 19.08.92, p. 10. 
1 
4. IMPLEMENTATION 
4.1 Planned job creation 
The impact of the SME Facility on the creation of additional employment has been carefully 
monitored. As the beneficiaries are entitled to receive 30.000 Ecus of subsidized loans for 
every new job created, and as the total volume of EIB loans from the Facility amounts to 1 
billion Ecus, the SME Facility will thus support the creation of at least 33.333 jobs. 
The statistical information collected indicates that this objective has already been largely 
exceeded at this stage as the total for the Union currently amounts to almost 42.000 jobs. 
When extrapolating these figures for a loan volume of 1 bn Ecu, a total in excess of 45.000 
jobs could be anticipated. The number of jobs which are planned to be created per Member 
State are provided in annex 2, while annex 3 provides the average loan amount per additional 
job in each country. 
4.2. Take-up of loans from the Facility 
The loan allocation profile in each individual Member State is provided in annex 4. For each 
country, the graph indicates the amounts which have already been allocated and committed, 
and the part which has not yet been used up (uncommitted share). The total of the committed 
and uncommitted shares constitute each country's indicative share. Moreover, several 
countries which have fully committed their share, have already constituted a reserve list. 
The overall amount of loans allocated in the Union currently amounts to 951.6 Mecu i.e. 
about 95 % of the total size of the Facility (situation as of 31 July 1995). The cumulative 
reserve list exceeds 182 Mecu. 
4.3 Priority for small SMEs 
Annex 5 illustrates that financial intermediaries in each Member State have largely exceeded 
the requirement to allocate at least 60 % of all loans to small SMEs. The average figure for 
the Union amounts to about 95 %. 
5. BUDGETARY ASPECTS 
Budgetary appropriations in relation to the payment of interest subsidies amounted to 65.5 
Mecus for 1994, of which 45.5 Mecu were transferred to the Bank in mid-1994 and the 
remaining 20 Mecu at the end of 1994 following budgetary transfers decided by Parliament at 
the end of the exercise. The amount proposed by the Commission in the 1995 Preliminary 
Draft Budget (22.75 Mecu) was reduced correspondingly, and credits amounting to 2.75 Mecu 
have been approved for the 1995 budget (and paid out in early 1995). The Commission 
proposed an amount of 7.75 Mecu in the PDB for 1996. 
All financial resources entrusted to the EIB for the payment of interest subsidies are credited 
on a special Community account within the Bank; interest earned on the account is credited 
monthly. Any amount outstanding at the time of termination of the SME facility will be 
repaid to the Community budget. 
ANNEX 1 
IMPLEMENTATION OF THE SME FACILITY IN EACH MEMBER STATE 
(Situation as of September 1995) 
Member State Agent Intermediaries j 
Austria BURGES INVESTKREDIT 
Belgium SNCI/NMKN SNCI plus other EIB global loan 
intermediaries through SNCI 
Denmark FÎH FÎH 
Germany KiW Whole banking system through KfW 
Greece Ministry for the All global loan intermediaries 
National Economy 
Spain ICO Whole banking system through ICO 
France CDC BFCM, CCCC, CCBP, CFD, CNCA, 
CNCM, CMB, CBG-PARIBAS, CCF 
Ireland EIB ICCandAIB i 
Italy MCC AH global loan intermediaries 
Luxembourg SNCI SNCI 
Netherlands NÏB NIB, ING, ABN AMRO 
Portugal IAPMEI All global loan intermediaries 
Sweden SËÏC SËK 
Finland ÎŒRÂ KERA 
United Kingdom Barclays Barclays, Barclays MBF, Midland, Royscot 
Trust, The Royal Bank of Scotland, Bank 
Scotland, Clydesdale, Northern Bank 
*\ 
ANNEX 2 
PLANNED JOB CREATION 
(Situation as of 31 Jufy 1995; in units) 
ANNEX 3 
AVERAGE LOAN SIZE PER JOB CREATED 
(Situation as of 31 July 1995; in Ecus) 
U 
ANNEX 4 
LOAN ALLOCATION 
(SU**t*m as of 31 July 1995; in Mecus) 
[ 
ANNEX 5 
PERCENTAGE OF SMALL SMEs 
(Situation as of 31 July 1995; in percent) 
13» 

ISSN 0254-1475 
COM(95) 485 final 
DOCUMENTS 
EN 08 01 
Catalogue number : CB-CO-95-527-EN-C 
ISBN 92-77-94461-7 
Office for Official Publications of the European Communities 
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