Luxembourg is a prime location for start-ups and innovative companies.
Cutting-edge infrastructures, the presence of business angels and venture capital as well as a favorable and stable tax regime (including an advantageous IP tax regime and the lowest VAT rate in Europe) are the cornerstones of Luxembourg’s economy.
The country has a long track record of anticipating economic and financial trends and welcoming innovative industries and businesses from all over the world.
In the first Semester 2015, the European Investment Fund (“EIF”) has signed two agreements with Banque Internationale à Luxembourg S.A. (“BIL”) and ING Luxembourg S.A. (“ING”) in order to provide a total of EUR 110 million of loans over a two year period to (i) innovative small and medium sized companies (“SME”) and (ii) Small Mid-cap companies (“Small Mid-cap”).
According to these agreements, the EIF will cover 50% of all the losses that BIL and ING might incur on any loan backed by the InnovFin SME Guarantee (the “Guarantee”).
I. Key elements:
A. Eligible loans:
Term loans, revolving facilities and financial leases (refinancing loans are excluded) are eligible to benefit from the Guarantee, provided that they are used for the following purposes:
- Investments, such as the acquisition of tangible and intangible assets (including goodwill);
- The provision of working capital; and
- Business transfers (up to 100% of the purchase price of a target company).
B. Eligible borrowers:
i. Primary criteria:
- Size of the borrower: the borrower must either be (i) an SME with less than 250 employees (at the SME’s group level) and have an annual turnover below EUR 50 million or a balance sheet total below EUR 43 million or (ii) a Small Mid-cap (i.e. a company that is not an SME and that has less than 499 employees).
- Nationality of the borrower: ING requires that the borrower is incorporated in Luxembourg. BIL requires that the borrower is incorporated in the Greater Region (SaarLorLux-Wallonia).
- Amount of the loan: at least EUR 25,000, up to a maximum of EUR 7.5 million.
- Maturity of the loan: at least 1 year, up to a maximum of 10 years.
ii. Innovation related criteria (non-cumulative)
The EIF has established the following eligibility criteria:
- The borrower is an SME and intends to use the loan to invest in producing or developing new or substantially improved products, processes or services that are innovative and where there is a risk of technological or industrial failure as evidenced by an evaluation carried out by an external expert , or
- The borrower must be a “fast-growing enterprise”, which is an SME or a Small Mid-cap operating in a market for less than 12 years following its first commercial sale and with an average annualized endogenous growth in employees or in turnover greater than 20% a year, over a three-year period, and with ten or more employees at the beginning of the observation period, or
- The borrower is an SME or a Small Mid-cap operating in a market for less than 7 years fol-lowing its first commercial sale and its R&I costs represent at least 5% of its total operating costs in at least one of the three preceding years or in the case of a start-up enterprise with-out any financial history, in the audit of its current fiscal period, as certified by an external auditor, or
- The borrower shall have a significant innovation potential or be an “R&I-intensive enterprise”, by satisfying at least one of the following conditions:
- The borrower’s R&I annual expenses are equal or exceed 20% of the loan amount as per the borrower’s latest certified financial statements, under the condition that the borrower’s business plan indicates an increase of its R&I expenses at least equal to the loan amount; or
- The borrower undertakes to spend an amount at least equal to 80% of the loan amount on R&I activities as indicated in its business plan and the remainder on costs necessary to enable such activities; or
- The borrower has been formally awarded grants, loans or guarantees from European R&I support schemes or through their funding instruments or regional, national re-search or innovation support schemes over the last thirty-six (36) months, under the condition that the loan is not covering the same expense; or
- The borrower has been awarded an R&D or Innovation prize provided by an EU institution or an EU body over the last twenty-four (24) months; or
- The borrower has registered at least one technology right (such as patent, utility model, design right, topography of semiconductor products, supplementary protection certificate for medicinal products or other products for which such supplementary protection certificates may be obtained, plant breeder’s certificate or software copyright) in the last twenty four (24) months and the loan purpose is to enable, directly or indirectly, the use of this technology right; or
- The borrower is an early stage SME and has received an investment over the last twenty-four (24) months from a venture capital investor or from a business angel being a member of a business angels network; or such venture capital investor or business angel is a shareholder of the borrower; or
- The borrower requires a risk finance investment which, based on a business plan prepared in view of entering a new product or geographical market, is higher than 50% of its average annual turnover in the preceding 5 years; or
- The borrower is an SME and its R&I costs represent at least 10% of its total operating costs in at least one of the three preceding years, or in the case of a start-up enterprise without any financial history, in the audit of its current fiscal period, as certified by an external auditor; or
- The borrower is a Small Mid-cap and its R&I costs represent (i) at least 15% of its total operating costs in at least one of the three preceding years; or (ii) at least 10% per year of its total operating costs in the three preceding years.
II. Key advantages:
- Guarantee backed loans offer the most competitive interest rates;
- Guarantee backed loans offer a high level of transparency (e.g. the loans’ repayment conditions, interest rates, etc.);
- Guarantee backed loans will facilitate access to funding at an earlier stage;
- Guarantee backed loans may be complementary to angel investor or venture capital funding (e.g. business angels might team-up with the banks offering Guarantee backed loans).
III. Target beneficiaries of the InnovFin SME Guarantee (i.e. potential borrowers):
- Research-based and innovative SMEs;
- Companies with a real commitment into innovation; and
- Companies having already raised funds (VC/BA)
The Guarantee provides an unprecedented opportunity for innovative SMEs to get access to cheap capital.