State aid: Commission approves amendments to a UK scheme financing small and medium enterprises


The European Commission has found several amendments to a UK scheme allowing publicly-backed funds to invest in Small and Medium Enterprises (SMEs) affected by a market failure, to be in line with EU state aid rules. The Commission found, in particular, that the measure encourages private investment in SMEs while limiting distortions of competition in the Single Market.

On this occasion, Commission Vice President in charge of competition policy Joaquín Almunia, stated: "Good cooperation with the UK authorities has enabled us to come to a quick conclusion on the improved Enterprise Capital Funds scheme. The scheme will help SMEs in the UK getting a more efficient and adequate access to finance, in line with the objectives of the Commission's forthcoming guidelines on risk finance aid".

In 2013, the UK notified the Commission its intention to amend the UK Enterprise Capital Funds (ECF) scheme for supporting access to finance by SMEs, so as to bring it in line with current market realities. In particular, the amendments are designed to improve funds' ability to cover the equity gap faced by eligible SMEs. This requires more flexible and better targeted public resources. The UK authorities therefore sought to raise (i) the public resources into ECFs from £25 up to £50 million, (ii) the initial investment tranche from £2 up to £5 million, and (iii) the overall investment cap up to €15 million (around £12 million) per undertaking. The scheme will be in place for ten years as of 2014.

The Commission found that the amended scheme contains adequate safeguards to minimise distortions of competition. In particular, public capital contributions will be limited at 66% or 60% of the funds, based on their profile (i.e. fund targeting respectively early or later stage SMEs) and will be invested only in SMEs facing an equity gap (i.e. SMEs with no commercial sale or operating in a market for less than seven years following their first commercial sale, or SMEs with limited commercial activity and planning to enter a new market). Moreover, to improve the investees' efficiency, the scheme will allow for capital replacement operations in very specific and limited situations, namely when the buy-out of an existing investor is coupled with the provision of fresh capital representing at least 50% of the capital replaced or, in the absence of additional fresh capital, for buy-outs up to £100 000 per transaction and per company.

The Commission based its assessment of the modified ECF scheme on the evidence provided by the UK authorities and on the criteria set by the risk capital guidelines of 2006, while taking also into consideration the on-going reform of the new risk finance state aid framework (i.e. GEBR, currently under public consultation, see IP/13/1281, and the risk finance guidelines, adopted on 15 January 2014 and applicable as from 1 July 2014, see IP/14/21 and MEMO/14/14).

Background

In May 2005, the Commission approved the UK Enterprise Capital Funds scheme (case SA.15373), aimed at improving access to expansion capital for SMEs throughout the UK. Funds, created through a joint participation of public and private resources, were to be commercially run and were allowed to invest in SMEs up to a maximum ceiling. Subsequent investments were allowed under specific conditions.

In 2006, the Commission adopted new risk capital guidelines (see IP/06/1015) which circumscribed the conditions under which such publicly-backed funds could invest in SMEs, in particular who would be eligible as investee and which types of operations the funds were allowed to undertake.

The non-confidential version of the decision will be made available under the case number SA.15373 in theState Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

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