A new counter-guarantee agreement between Denmark’s export credit agency EKF and the European Investment Fund (EIF) will provide cheaper export financing for innovative and growth-oriented SMEs in Denmark.
The agreement, which is part of the European InnovFin programme, allows EKF to guarantee credits at lower premium rates to innovative Danish businesses, and is expected to generate bank loans of more than DKK1.2bn (US$180mn) in total over the next two years. EIF will cover half of the risk at a fixed low price regardless of the company’s rating.
Speaking to GTR, Kim Richter, an EKF senior director who led the negotiations, says the EKF’s credit criteria still apply, as do the banks’ usual procedures for granting a loan.
“The real issue here is that under the InnovFin programme, we are working with a flat rate for SMEs. It means that no matter what your credit rating is, if you are qualified, InnovFin will charge the same low risk premium of 0.5% for their half of the risk,” he says.
Richter adds that the flat rate from InnovFin will give a “significant price reduction” on premium rates, particularly for fast-growing but less well-established innovative companies.
“There’s quite a large advantage for companies with a weaker rating especially,” he says. “They would normally attract quite a poor rating in the banking system and also with us, and that would trigger a higher premium. But with a flat rate they can benefit from a more competitive price on their financing.”
He says EKF’s existing working capital guarantee programme charges premiums of up to 6.3% for smaller companies. With an InnovFin discount this premium would be 3.7% instead.
“We noticed that the financing cost is an issue for these companies, and then our attention was brought to this [InnovFin] programme, and we had a thorough discussion with them on how to apply it,” Richter says, adding that he expects the new collaboration to benefit over half of the 500 Danish companies that EKF assists today, across a variety of industries.
Companies are eligible to a guarantee under the programme by meeting at least one out of EIF’s 14 eligibility criteria. This includes businesses intending to spend the credit on research and development or implementation of new or significantly improved products, processes or business models. Innovative companies, mainly exporters or sub-suppliers with up to 500 employees can apply for an InnovFin guarantee offered by EKF.
‘InnovFin – EU Finance for Innovators’ is a joint initiative launched in 2014 by the European Investment Bank Group along with the European Commission under Horizon 2020. It is expected to make more than €24bn of financing available to innovative companies to support €48bn of research and innovation investments.
The initiative has already supported a range of projects across Europe, but EKF is among the first export credit agencies to signa collaboration agreement of this kind. Earlier this year, Italy’s export credit agency Sace agreed a similar InnovFin deal.