A new study published by the European Commission finds that a mismatch in supply and demand in the loans market means creative businesses are missing out on billions of euros in credit. This finance gap of €13.4 billion is the amount in investments lost as companies with sound business strategies and good risk profiles are either refused a loan or decide not to apply for one altogether because they lack sufficient collateral assets. This will hamper the growth of the European creative sector that accounts for 4.4 percent of the EU’s GDP.
Loans for creative SME’s
The study was commissioned to help shape the EU’s new strategies to support the cultural and creative sectors through initiatives such as the Financial Guarantee Facility under the new Creative Europe program. This guarantee, which will operate from 2016 and specifically target small and mid-sized enterprises, will share the risk on loans offered to them by banks. Creative Europe will set aside more than €120 million to fund the guarantee, which is expected to yield more than €750 million in affordable loans. The bulk of the program’s resources will continue to be allocated for non-repayable grants.
The Commission will also support initiatives that improve knowledge about the assessments of the credit-worthiness of SMEs in the cultural and creative sectors. For example, many lenders have insufficient experience in assessing the solvency of businesses with ‘intangible assets’ such as intellectual property rights.
Contrary to what is often assumed, the study found no evidence that the Creative sector is made up of financial underperformers. In fact, many of these companies exhibit above-average levels of profitability and are in good financial health. And yet creative entrepreneurs face strong difficulties in accessing finance, because of the intangible nature of their assets, the relatively young and fragmented market they operate in and their sector’s vaguely defined boundaries.
To help in fine-tuning the Commission’s response to this problem, the study explored the multidimensional nature of the problems surrounding access to finance. While it found that lowering the financing risk for banks –a problem which will be addressed through the Creative Europe Guarantee Facility– is critical, it equally highlights the importance of providing the right financing mix for the creative industry.
“Another finding emerging from our research is the importance of knowledge sharing if we want to fully tap the potential of these dynamic and quickly developing sectors. This will both involve capacity building initiatives for creative and financial professionals as well as the promotion of closer interaction between banks, public-private financiers, microcredit providers, business angels and venture capitalists,” the authors explain.
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