Access to finance for French SMEs Lionel Vignaud, Economic Department, CGPME

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Access to finance for French SMEs
Lionel Vignaud, Economic Department, CGPME
PHARE Business Support Programme of the European
Union UEAPME - SME FIT II
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What is CGPME  (General confederation for French
SMEs) ?

• A private, independent SME organisation, created
  in January 1945, and chaired by Jean-François
  Roubaud since October 2002.
• An umbrella organisation, embracing professional
  federations and local organisations, in the field
  of services, trade and industry.
• A French social partner.

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Current situation

• Difficulties to access to finance for SMEs
  started around a year ago in France.
• These difficulties have increased during the last
  months, especially with the subprime crisis and
  the related problems in the interbank market.

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Current situation

• SMEs are among the most hit by the crisis due to
  the following reasons
• They are often dependants of the big companies,
• They lack of own funds,
• They are less involved in exportation,
• The banks have more difficulties to asset their
  risk,
• They are less aware of the financial system and
  of the opportunities of support.

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Current situation

• SMEs need to have access to finance in order to
  invest, and above all to maintain their operating
  cycle.
• Otherwise, business failures will keep going
  increasing
• 15 for 1st trimester 2008,
• Up to 140 in specific sectors (transport).

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Current situation

• French SMEs dont have a high self-financing
  capacity. Therefore, they need to resort to
  external financing such as
• Financing by the bank sector,
• Supports from institutions dedicated to SMEs
  (OSEO in France),
• Venture capital,
• microcredit,
• Others,

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• Access to Finance for French SMEsA study by CGPME

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Financing by bank sector

• Banks are the main partner of enterprises for
  their access to finance. This is true for 88 of
  the entrepreneurs.
• Banking debts represent 11 of SMEs liabilities
• In October 2008, the total amount of the
  outstanding exposure of non financials
  enterprises is 783 milliards Euros.

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Background

• Generally speaking, SMEs are faithful to their
  banks.
• Around 60 of the enterprises with a turnover of
  less than 2,5 millions Euros are working with one
  bank.
• 5 of them are working with 2 banks
• However, entrepreneurs point out the mistrust of
  the banks toward them, as well as their
  difficulties to acess to finance.

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Background

• A study carried out in 1998 point out that the
  access to loan was limited for 40 of French SMEs
  between 1985 and 1998.
• This percentage was estimated at 20 in 2006.
• Currently, the studies carried out by the Banque
  de France revealed the tightening of granting
  credit criteria.

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Aim of the study

• Access to finance is crucial for the
  competitiveness of SMEs, especially in the
  context of the current financial crisis.
• However, due to the lack of data, it was
  difficult to assess properly the situation and to
  make concrete proposals on how to improve it.
• Therefore, CGPME carried out a study to identify
  the main problems encountered by SMEs as regards
  access to finance.

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Framework of the study

• Target CGPME Members
• Duration from 7 to 20 October 2008
• Number of replies received 3294 SMEs

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General profile of respondents

• Replies came from entrepreneurs in the services,
  trade and industry sector. Most of the
  respondents are working in the services sector
  (48).
• Most of the respondents represent small
  enterprises 57 of them employed less than 11
  persons and 90 employed less than 51 persons.
• A majority of the respondents are experienced and
  ran their company for more than 10 years
  (63,91).
• More than 90 of respondents were registered
  companies

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Preliminary data

• During the last months, 70 of the respondents
  from the services sector made use of a loan
• Among these loans, 34 are working credits and
  38 are investment credits.
• The rest (21) are leasing credits or bank
  guarantees.

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Results Relations Banks-SMEs

• 35 of the respondents said that their relation
  with banks have worsened since the start of the
  crisis mainly for the following reasons
• Increased reluctance of banks toward SMEs,
• Decreased credit lines,
• Hardening of the conditions to access to loans,
• Increasing of the guarantees asked to SMEs,
• Increased cost of borrowing

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Results Access to credit

• Around 36 of SMEs pointed out that the
  conditions to access and use loans have worsened.
  
• 54 of SMEs stressed the rising costs of banking
  services
• Guarantee requirements have increased according
  to 41 of SMEs
• 25 of SMEs noticed that the banks are requiring
  more documents

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Results Immunity of assets

• Since 2005, French law gives the possibility to
  entrepreneurs of gaining immunity for the main
  residence, which can be declared unseizable
• Currently, 15 of entrepreneurs have had to give
  up this protection in order to have their loan
  accepted

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Alternatives

• Instruments lending by institutions that are not
  banks

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1- OSEO

• OSEO is a public institution aiming at
• Financing and supporting SMEs,
• Implementing national and regional policies,
• OSEO provide
• services to support for SMEs to access to
  finance, investment,
• exploitation cycle
• guarantees.

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1- OSEO

• Intermediation institution
• Work notably with the European Investment bank
  and disseminate his financial instruments.
• Institution that is currently implementing the
  government policy to support SMEs during the
  crisis
• - Increase of the funds allocated to SMEs,
• - Increase of the guarantees,
• - provides more assistance to SMEs.

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1- OSEO

• Data
• In 2007, almost 62 000 enterprises financed,
• 15 innovative enterprises supported,
• In 2008
• 800 billions Euros allocated to innovative
  enterprises
• OSEO is currently the main partner for SMEs.

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2- Venture capital

• In the framework of the revision of Lisbon
  strategy, The European Commission wants to
  develop and improve access to venture capital for
  SMEs,
• Venture capital market has increased during last
  years,
• France is the first venture capital market in
  Europe,
• 8 billions Euros were lend by French investors in
  2005. This enable to create 39.000 jobs.

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2- Venture capital

• An advantageous strategy,
• During the last 12 months, 50 of the enterprises
  using venture capital have increased their growth
  up to 5.
• Supported enterprises benefit from a better
  visibility,
• Supported enterprises seams to have less
  difficulties to find funds.

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2- Venture Capital

• Assets
• Assistance
• Positive effect to find funds
• Disadvantages
• New partners involved in the capital
• Loss of power
• Risk of aiming at an immediate growth instead of
  at a long term strategy.

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3 - Microcredit

• European definition
• Loans lower than 25.000 Euros
• Loans dedicate to enterprises employing less than
  10 persons and to underprivileged persons.
• Microcredit can be provided by banks or other
  institutions.

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3 - Microcredit

• High demand for microcredit, but not all the
  demand are
• satisfied
• Microcredit provided by banks each year
  111.000
• Potential demands 211.000
• Microcredit provided by other institutions each
  year
• 10.000
• Potential demands 90.000 et 140.000.

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3- Microcredit

• A multiplicity of potential interlocutors
• Example of intermediaries facilitating the banks
  offers
• OSEO et network supporting enterprises (chambers
  of commerce)
• ADIE association which enable to create more
  than qui a 44.000 enterprises and 53.000 jobs
  since 1989.

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3- Microcredit

• Targets groups that would have had difficulties
  to access to finance through usual systems.
• Small loans difficult to get from financial
  institutions
• In average 2.600 Euros for 18 months.
• Assistance and training needed to prepare the
  application during 2 years.

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4- Mezzanine Financing

• Mezzanine financing is an intermediary instrument
  between debt and equity funds.
• Mezzanine financing is unsecured debt offering a
  high return with a high risks. This type of debt
  generally offers interest rates two to five
  percentage points more than that on senior debt
  and frequently gives the lenders some right to a
  share in equity values should the firm perform
  well.

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4- Mezzanine Financing

• Wiliness of European Commission and EIB to
  develop Mezzanine instruments.
• Reluctance of the entrepreneurs due to their
  complexity.
• Creation of a dedicate funds in France called
   Avenir Entreprises Mezzanine  by EBI, CDC and
  OSEO, allocated by 60 M in January 2008.

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5 - cautionnement mutuel professionnel

• Cautionnement mutuel professionnel
• Les organismes donnent en général une garantie
  minimale de 50 du prêt. En contrepartie,
  lemprunteur verse une contribution restituable
  de 1 à 4 du crédit au titre de la mutualisation
  et peut éventuellement souscrire au capital de la
  SCM à hauteur de 0,5 ou 1 du concours garanti.
•  

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6- Tax incentives

• Tax deduction
• In France, an individual, which is paying the
  solidarity tax on great wealth (ISF) can benefit
  from 75 tax deduction for investing in the
  capital of an SME.
• This measures applies to investment up to 50 000
  Euros.

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6- Tax incentives

• Results
• Positive effect to increase investments in SMEs
• 92.000 individuals benefit from tax deductions,
  according to the government.
• 656 millions euros allocated to SMEs

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Others

• Factoring operation
• Credit Insurance

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Thank you for your attention ?
PHARE Business Support Programme of the European
Union UEAPME - SME FIT II