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lat 1924 -2014 Outcomes of de minimis Guarantee Scheme implemented by Bank Gospodarstwa Krajowego Outcomes of De minimis Guarantee Scheme implemented by Bank Gospodarstwa Krajowego This booklet is a summary of a larger research report by Tomasz Kaczor PhD and Agnieszka Kowalczyk and is available in an electronic version (PL). Bank Gospodarstwa Krajowego Al. Jerozolimskie 7, 00-955 Warszawa www.bgk.pl Analyses and Research Department Tel: +48 22 599 82 43 [email protected] Copyright: Bank Gospodarstwa Krajowego. All rights reserved. 2 lat 1924 -2014 About de minimis Guarantee Scheme The government aid scheme for SMEs, or „De minimis Guarantees” (De minimis Portfolio Guarantee Line, PLD), was launched in spring 2013 in response to the economic slowdown that particularly affected micro, small and mediumsized entrepreneurs (SME). De minimis Guarantees were an answer for the needs of SMEs in the scope of access to current operation finance. The support under the Scheme was based on the principles of de minimis aid. More than 83 thousand of the state-owned Bank Gospodarstwa Krajowego (BGK) guarantees were granted during the first 17 months of the Scheme, securing nearly PLN 24 billion of credits. The most numerous group of Scheme participants, for as much as 75%, are micro entrepreneurs. For loans financing their current and investment activities, SMEs may obtain loan repayment guarantees offered by Bank Gospodarstwa Krajowego through lending banks enrolled to the Scheme. De minimis Guarantee secures up to 60% of the credit amount both in the case of working-capital as well as investment credits. It does not cover interest and other credit-related costs. It is secured with a blank promissory note of the entrepreneur, and the commission on the guarantee granted is 0.5% of the guarantee amount per annum. The only major difference between the guarantee securing a working-capital credit and the guarantee securing an investment credit is the duration: in the case of the former, the guarantee is granted for 27 months at most, while for investment credit—for 99 months. The benefits for entrepreneurs, resulting from application for guarantees, included, inter alia: • availability of lending for bank’s clients with a short credit history or lack of sufficient collaterals, • elasticity in own estate management, i.e. the part covered with de minimis guarantee—the entrepreneur does not have to pledge it to the benefit of the lending bank or Bank Gospodarstwa Krajowego. • time savings—all formalities are completed directly at the lending bank simultaneously with loan award, • reduction of total credit costs due to e.g. lower margin or commission, • simpler application procedure—completion of the application for a guarantee along with the provision of information about the public aid. 3 Outcomes of De minimis Guarantee Scheme implemented by Bank Gospodarstwa Krajowego About the study The main aim of the study under consideration, conducted by Bank Gospodarstwa Krajowego, was to assess the accessimproving effects of De minimis Guarantee Scheme in the scope of external financing for micro, small, and mediumsized entrepreneurs, and also effects of the aid on the results of companies operating in conditions of economic downturn, and on the Polish economy. The aim was achieved by answering the following research questions: • How would you assess the degree of accuracy of De minimis Guarantee Scheme in improving the access to external financing for SMEs and satisfying their needs in this scope? • How would you assess its effectiveness in limiting the financing gap and related barriers? • How would you assess the level of usefulness of the Scheme in terms of direct and additional effects measured first of all with changes in employment ratios, market position, turnover increase, or investment completion thanks to the released funds? • What benefits did the economy, and first of all the SME sector, gain as part of de minimis guarantees? The assessment of outcomes of the government Scheme we conducted on the basis of evaluation criteria measuring accuracy, effectiveness, usefulness, and sustainability of de minimis aid. In the study, we used standardised and deepened reporting data analysis, data obtained in personal interviews with Scheme participants and survey data collected with the use of CATI method from 973 entrepreneurs in the SME sector who used de minimis guarantees. 4 We grouped the results of the study under the following thematic blocks: Description of the Entrepreneur str. 5–6 First of all we characterised the Scheme beneficiary - an entrepreneur who used de minimis guarantee, and their experience in terms of access to financing in the past. Relevance and effectiveness of the Scheme - limitation of the financing gap s. 7–8 This part includes results concerning first of all the diagosis whether and to what degree the Scheme reduced the financing gap in the SME sector. Utility and sustainability of the Scheme s. 9–12 The last block of results comprises the assessment of Scheme effects both at the level of the entrepreneur as well as in the macro scale (impact of the Scheme on selected economic indicators). lat 1924 -2014 The most important study results Description of Scheme participants—their needs and experience in obtaining external financing in the past In relative terms, the most active group in obtaining external financing as part of De minimis Guarantee Scheme are small and early stage entrepreneurs (27% of respondents are companies present on the market for a period from 1 to 3 years, start-ups—21%), for whom refundable financing is not considered the most appropriate development instrument. However, the analysis has shown that the relevant design of the aid made this form of support attractive also to young businesses. During the study, we did not record significant differences in amounts of credits granted in the groups of entrepreneurs with different market seniority. It suggests that young companies (and start-ups in particular), even those without extended credit history, have obtained external financing in a desired amount when supported with de minimis guarantee, and the PLD Scheme is a tool that equalises financing access disproportions stemming from the period of operation on the market. The amounts of credits with de minimis guarantee obtained are significantly higher when compared to the refundable financing applied for by SMEs in 2011, when only 28% of them declared participation in the working-capital credit application procedure for a credit higher than PLN 50 thousand. Whereas, the outcomes of de minimis aid analysis show that as much as 70% of companies have received such a credit, with 62% of micro entrepreneurs among them. This result demonstrates that de minimis guarantee was a factor contributing to higher debt financing obtained by companies, including those coping with the gravest difficulties in leveraging external financing. In the past, 18% of the surveyed PLD Scheme participants found themselves in the financial gap, understood both as lack of or difficult access to financing when attempted, but also as resignation of the entrepreneur from applying for financing because of probable rejection of the application. Half of them experienced problems in the form of refusal (2%) or worse financing conditions (7%), and next 9% of all respondents possibly located within the gap resigned from applying for external financing although they needed it. the company was granted the requested working capital credit or loan credit/loan was granted with less favourable conditions than requested (e.g. shorter crediting period, lower credit amount) complete refusal of working capital credit or loan in the recent 2 years (until applying for a credit with de minimis guarantee), the company needed a loan or working capital credit but opted out from applying for it not applied/not needed I don’t know Source: own study of BGK on the basis of the survey 5 Outcomes of De minimis Guarantee Scheme implemented by Bank Gospodarstwa Krajowego In the past, the biggest problems with external financing were experienced by companies operating on the market for a period from 1 to 3 years (10% of them received financing on worse conditions, and 2% were rejected financing at all) and micro entrepreneurs (7% and 2%, correspondingly). According to nearly 40% of our respondents who have not obtained financing or have obtained it, but on worse conditions, the basic reason for difficulties in access to working-capital financing was lack of collateral for the credit or loan, required by banks. lack of required collateral for working capital credit or loan refusal without stating the reason low company’s revenue and turnover unsuitable bank’s offer or burdensome procedures, requirements and costs of credit period of operation in the market too short credit interest rate too high other reason Source: own study of BGK on the basis of the survey In turn, the main reasons for resignation from applying for external financing for the entrepreneurs were first of all: burdensome and lengthy procedure (41%), unfavourable conditions of the loan/credit or the crediting period (25%) and lack of sufficient collateral (15%). cumbersome and lengthy procedure of obtaining credit/loan unfavourable financial conditions of the credit/loan or concerning the crediting period insufficient credit or loan collateral other source of financing other reasons Source: own study of BGK on the basis of the survey For many of the entrepreneurs, a collateral in the form of guarantee not only lifted the barrier consisting in lack thereof, but also provided an indirect way to simplify the procedure for collateral obtainment, and thus, also the whole loan/credit procedure, and to improve crediting conditions. Therefore, we can assume that for the 15% that resigned from application earlier, the PLD Scheme eliminates the main reason for resignation, while for 66% of them de minimis aid constitutes an element limiting the reasons for resignation. 6 The results of the BGK’s survey, pointing out lack of collateral as one of main reasons for both the failure to receive a credit or loan or receiving it on worse conditions as well as for informed resignation despite a need in this scope, once again confirm the value of De minimis Guarantee Scheme, which directly addresses the issue of lacking collateral. lat 1924 -2014 Relevance and effectiveness of the aid—reduction of financial gap in result of PLD Scheme implementation 29% of the entrepreneurs surveyed by us decided to use the aid in the form of a de minimis guarantee first and foremost because of the lack of sufficient collateral for the credit amount they wished to apply for. Next 25% had a pos- sible collateral available, but considered it infavourable for the development of their company or the owner to utilise it. Such outcomes directly confirm the accuracy of PLD scheme assumptions. the company had relevant collateral but the de minimis guarantee enabled to earmark its collateral for other purposes (e.g. collateral of another credit) company had the potential collateral which was suitable the for the crediting bank but did not want to use ii, because it was detrimental to the company or the owner (e.g. secured with private real estate) Source: own study of BGK on the basis of the survey In the case of the other 46% of entrepreneurs (who had relevant collateral), de minimis guarantee enabled them to earmark their collateral for other purposes, e.g. another credit, thanks to which they obtained an opportunity to intensify business operations. This is one of the most significant outcomes of our survey, indicating that the aid under the Scheme was not only a simple instrument securing the credit, but in many cases it could be also an impulse to further development and investments of the company. Taking this fact into consideration we may cautiously say that a low-risk financial instrument, i.e. a working-capital credit guarantee making the credit more attractive for the entrepreneur, results—in many cases recorded in the study—in the release of funds and possibility of investing, activating at the same time a high-risk mechanism, namely investments in such assets/enterprises as considered by the entrepreneurs (each of them individually) most reasonable in the context of their needs. company did not have sufficient collateral for the credit the (e.g. had no real estate) In the whole population of our study, 33% of entrepreneurs fell into the financial gap, including: • 19% of the entrepreneurs would not have obtained a working-capital credit without de minimis guarantee, • 14% would have obtained a credit, but in a lower amount (the average amount of credit received without de minimis guarantee would have been lower by approx. 30%). the guarantee, without the company would have obtained a credit of the same value the guarantee, without the company would have obtained a credit of lower value the guarantee, without the company would not have obtained a credit it’s hard to say Source: own study of BGK on the basis of the survey 7 Outcomes of De minimis Guarantee Scheme implemented by Bank Gospodarstwa Krajowego On the basis of the analysis of data collected we observed a similar level of credits obtained by companies having broader (international and national) range as well as by companies with a narrower (local and regional) coverage. Whereby the study on the financial gap, conducted in 20131, implies that broad range of activity is correlated with higher odds to obtain a working-capital credit. Thus, a positive impact of de minimis guarantees on the possibility of obtaining external financing by entrepreneurs with less disseminated operations can be noted, as 55% of all companies unable to obtain a working-capital credit without guarantee are entities operating locally and regionally. Results of the study of Bank Gospodarstwa Krajowego show that a standarised, simple and commonly accessible tool of support in SME sector has been designed which—when accurately targeted—turned out to be the greatest success among guarantee schemes carried out in Poland so far. The above is connected, among other things, with the fact that the amounts available as part of de minimis aid have been accurately estimated and correctly targeted in correspondence to the needs of entrepreneurs In the light of the outcomes of our study, companies active on the marked for a period from 1 to 3 years seem to constitute the group in the most need of support and at the same time a group using the support in the best way. Most of them (37%, which is nearly two times more than in the case of start-ups) most commonly used de minimis guarantees because of the lack of collateral satisfactory for financial institutions, and 61% of them used the guarantee only to secure a credit. Every fourth representative of this group, even if able to obtain a working-capital credit without the guarantee, would not have obtained it in such a high amount. the company did not have sufficient collateral for the credit for which you applied (e.g. had no real estate) the company had the potential collateral which was suitable for the crediting bank but did not want to use it because it was detrimental to the company or the owner (e.g. secured with private real estate) the company had relevant collateral but the de minimis guarantee enabled to earmark its collateral for other purposes (e.g. collateral of another credit) Source: own study of BGK on the basis of the survey Assessment of the gap in the access of Polish entrepreneurs to external financing. Conclusions and recommendations for the cohesion policy programming process in 2014–2020”, IBS 2013. 1 8 lat 1924 -2014 Utility and initial sustainability of the aid: positive effect at the enterprise level and in macro-economic account Most frequently, the credit with de minimis guarantee has been used by entrepreneurs as a business tool necessary for the development of the company (70% of responces). Only 17% of the respondents considered the aid to be a kind of nostrum for financial liquidity issues. in order to solve recurring problems with liquidity it’s hard to say in order to solve a one-off problem with liquidity in order to use the credit as a permanent business tool for the company’s financial management Source: own study of BGK on the basis of the survey As a business tool, credit with de minimis guarantee is most frequently used in trade. On the other hand the least frequently, for only by every fourth of the surveyed companies, it is used in the construction sector which needed workingcapital financing to solve problems with payment bottlenecks. Considering the fact that the sector was relatively strongly affected by the economic slowdown, our results demonstrate the effectiveness of PLD as a mechanism limiting the effects of the downturn. The survey allows to draw a conclusion not only about a positive impact of the aid on payment bottlenecks solving, but also that an additional, qualitative effect of de minimis guarantee has appeared, consisting in raised awareness and level of knowledge concerning the use of refundable financing instruments in strategic management of company’s capital among micro, small, and medium-sized enterprises. This is an important outcome, the so-called experience effect of PLD Scheme implementation. A comparison of results for our whole research sample and the group of companies covered with the financing gap reveals that the Scheme has even a stronger effects on the entrepreneurs within the gap. The highest percentage of the surveyed indicated the maintenance or improvement of their market position, stabilisation of financial situation, i.e. elimination of bottlenecks and improvement of liquidity to a level enabling new investments. It is important to note that four out of six indicators of business performance show higher values for respondents falling within the financing gap (it is particularly the case for the financial stabilisation indicator, turnover increase, and new investments). 9 Outcomes of De minimis Guarantee Scheme implemented by Bank Gospodarstwa Krajowego all surveyed entrepreneurs entrepreneurs from the financial gap Source: own study of BGK on the basis of the survey Entrepreneurs who have not observed any positive results yet, expect to see them in the nearest future, including first of all in the context of creation of new jobs, maintenance or improvement of market position, and turnover increase. Similarly as for the effects that occurred, the values of most indicators are higher for companies included to the financing gap. Source: own study of BGK on the basis of the survey 10 all surveyed entrepreneurs entrepreneurs from the financial gap lat 1924 -2014 The total of 1329 jobs have been created in the surveyed enterprises, and there are plans to create next 537 jobs. Basing on the answers of the respondents, we have estimated that each PLN 1 of awarded de minimis guarantees corresponded to 0,39 PLN of investments possible thanks to the credit obtained because of the guarantee. The analysis of the survey data makes it possible to make a conclusion that relatively best effects have been recorded by companies operating on the market for a period from 1 to 3 years, since as much as 80% of them have created new jobs, 58% maintained the existing ones, 63% carried out investments, and 49% improved their market position against 42% that maintained it. Nearly 90% of the surveyed declared that the new jobs would be maintained longer than for a year, while 93% declared the same for the existing jobs. yes no it’s hard to say Source: own study of BGK on the basis of the survey 53% of our respondents who used a credit with guarantee to solve recurring liquidity problems estimated that de minimis aid enabled them to resolve these difficulties for a period longer than one year as of obtaining the credit. This result allows a fairly optimistic assessment of the working-capital aid sustainability. for a period shorter than 1 year from the date of obtaining the working capital credit for a period longer than 1 year from the date of obtaining the working capital credit it’s hard to say Source: own study of BGK on the basis of the survey 11 Outcomes of De minimis Guarantee Scheme implemented by Bank Gospodarstwa Krajowego In the context of macroeconomic effects of the Scheme, we have observed that an additional credit pool was generated in the case of entrepreneurs which would be unable to obtain financial support without de minimis guarantees (the credit pool would not have occurred had the PLD not been implemented). The observation is confirmed also by the NBP’s studies on the situation of the credit market, which show that in 2013 Q3, we recorded an increase in demand for short-term lending, mainly on the part of SMEs. Banks indicated the launch of the guarantee scheme as the most important reason for the growth in demand, apart from the lower interest rates. In result of the study we have estimated that the value of credit granted to enterprises belonging to the research sample and at the same time to the financial gap totalled PLN 55.8 million (the average credit amount at a level of PLN 312 thousand). To extrapolate the research data onto the whole population, we have used sales data as at the end of July 2014, according to which 79.1 thousand credits with de minimis guarantee have been granted since the launch of the Scheme, totalling to more than PLN 22.5 billion. Therefore, for the whole population of Scheme participants, we have arrived at the amount of PLN 5.5 billion of additional lending which could not have been possible without de minimis guarantees. Taking into account the NBP data concerning receivables and liabilities of banks2, showing that in the period of the Scheme, the value of bank’s current receivables from enterprises increased by 3PLN 7.1 billion, we may assume that de minimis aid accounts for more than ¾ of the total net increase in the receivables during the Scheme period4. We have also estimated the impact of the PLD Scheme on employment indicators for the whole economy. Entrepreneurs included into the financing gap stated that thanks to the credit with de minimis guarantee it had been possible to create 229 jobs—1.28 per enterprise at the average. In order to calculate the effect for the whole population of Scheme participants we assumed that new jobs are proportionately connected with the additional credit obtained. Based on that we can estimate that in all companies that used de minimis guarantee, approx. 22.5 thousand jobs were created. The result above should be treated with due caution, since it is impossible to exclude that in the case of lack of access to lending it would have been possible to obtain financing from other source and that the improvement of the situation of the Scheme beneficiaries caused a relative, corresponding deterioration of situation of their competitors, levelling part of the effect. 2 Data until July 2014 3 From the end of February 2013 to the end of July 2014. 4 We emphasise that it does mean that De minimis Guarantee is responsible for ¾ of credits awarded during the Scheme period. Preparation of the analogical account for newly granted gross credits was impossible due to lack of data in this scope for the whole baking sector. 12 lat 1924 -2014 13 Bank Gospodarstwa Krajowego Analyses and Research Department www.bgk.pl 11/14 [email protected] tel.: +48 22 599 82 43