EU shakes up state aid finance rules for mid-caps
The European Union is to make it easier for companies to raise essential finance for investment with changes to rules on government support, or state aid.
Reforms announced by the European Commission (EC) are a response to problems in the credit market that has seen around a third of small and medium-sized companies unable to obtain the funding they need to grow and develop.
The EC has adopted new guidelines with a “radically enlarged scope” setting out the conditions under which member states can grant aid to facilitate access to finance by European SMEsand companies with a medium capitalisation, so-called midcaps.
Commission vice-president in charge of competition policy, Joaquín Almunia, said: "The market failure in access to finance, which has been exacerbated by the crisis, affects European companies in their development, from the start-up stage onwards. These new rules will help bridge this funding gap by encouraging Member States to put in place well-designed aid measures. Such measures can give private investors the right incentives to invest more into SMEs and midcaps, enhancing their capacity to grow and create jobs".
Changes also mean a wider range of financial instruments are admissible, including equity, quasi-equity, loans and guarantees, to better reflect market practices. It is hoped that this will mean financial intermediaries and investment funds involved will be able to offer companies the amount and form of financing that is appropriate to their development stage and to the sector in which they operate.
The reforms will introduce a mandatory participation of private investors tailored to the development stage and riskiness of the company. Minimum private investor participation will now range between ten per cent and 60 per cent depending on the age and riskiness of the company.
Other modifications include new and more flexible forms of support to alternative trading platforms. The guidelines allow grants for the setting up of such platforms, as well as tax incentives to investors buying the shares of SMEs listed on such platforms.
There will also be more flexibility and clearer conditions for tax incentives to investors. For example, tax incentives to ‘natural person’ investors will be exempted from the notification requirement, complemented by the guidelines which set out the conditions for tax incentives to corporate investors.