Bpifrance: French Public Guarantee Scheme A comprehensive support institution for SME development JLGC conference 24th november 2014 SERVING THE FUTURE.

Bpifrance: French Public Guarantee Scheme

A comprehensive support institution for SME development

JLGC conference

24th november 2014

SERVING THE FUTURE

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Titre de la présentation

Guarantee allocation:Beyond product definition, attitude and partnershipO4.

From public policies to adapted guarantee instruments03.

The guarantees as a central piece of the support scheme02.

BPIFRANCE presentation:Main features01.PLAN

01.Bpifrance main features

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3

What is bpifrance?

Structure

Values

Organization

A new institution, and a bank for tomorrow’s growth, using accumulated experience

Group established in 2013 … Presidential objectiveSymbolic sign to entrepreneurship , with a heayweight institution dedicated to this task (assets € 42

billion)Target core : fast growing and innovative companies Supports the whole of the SMEs population

… from the addition of pre-existing entities , with proven efficiency over decades Guarantee scheme and lending activityInnovation support Equity investment activity from another French public institution, the « Caisse des Dépots et

Consignations » 

A mission : serve the futureNot merely and addition, but a source of dynamicsInstitution up to the challenges of « post global crisis » recoveryImpulse optimism in economic actors, and give incentive to private banks to support them

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01. What is Bpifrance ?

All the French public financing tools come together

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Equity structure

Created by law, Bpifrance is owned by the

Caisse des Dépôts and the French State.

Bpifrance is organised around two separate

primary business activities : Bpifrance

Financement and Bpifrance

Investissement.

.

PROXIMITY90% of all decisions are taken

regionally,where entrepreneurs are located.

DRIVEPersonalised support to

entrepreneurs,providing them with the means to

succeed.

SIMPLICITYThe implementation of a financing continuum,simpler and more accessible than before.

OPTIMISM

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Our values :

Motivated and enthusiastic teams,striving to make entrepreneurship a positive experience.

Our policy: to invest, finance, guarantee and follow up enterprises, from very small to large, from home market to export

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Titre de la présentation

A new comprehensive, multi -instrument support institution

INNOVATION SUPPORTDirect support (grants and soft loans) to

enterprises’ innovation programs

GUARANTEEOn bank loans, Bpifrance loans and equity investments

DIRECT FINANCINGFor all material and immaterial investments,

working capital needs, together with banks and

leasing companies

Equity investmentsAs minority shareholder,

in SMEs and large companies,

through specialized funds, or with partner funds

EXPORT STIMULATIONFollow up and provision of services for

international development (in relation with

UBIFRANCE, (support network), and foreign

risk insurance (Coface)

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Overview of 2013 activity

€ 10 BNAllocated financing

€ 4 BN in short term loans€ 3.7 BN in investment loans€ 1.3 BN in development loans€ 750 M in innovation financing

€ 8 BN guaranteed bank

loans

€ 1 BNCapital investment

€ 111 M invested directly in innovation capital

€ 121 M invested directly into SMEs

€ 368 M invested directly in mid-caps and large caps

€ 444 M invested in partner funds

Of which:€ 2.5 BN in business start-up loans (guarantee funds)€ 800 M in cash flow consolidation

.

A strong partnership with regional authorities

Bpifrance works in collaboration with

regional authorites,

to develop financial solutions adapted to

territorial specificities.

Regional authorities are present in Bpifrance’s governing bodies: Board of Directors, National Orientation Committee (NOC) and Regional Orientation Committees (ROC).

Regional authorities provide many financial tools for businesses (guarantee, financing, innovation regional investment funds…).

All French Regions operate a co-guarantee scheme with Bpifrance, through a complete processing and risk management set up.

.

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Organization: a strong regional anchoring

CREATIVE ENERGIES ARE IN REGIONS.

90 % OF DECISIONS ARE TAKEN LOCALLY.

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Network structure

42

regional offices

90%

of all decisions are taken regionally

1Specialised contact reaching out to businesses

Bpifrance, closer to entrepreneurs

02.Guarantees :A central piece of the business model

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Public guarantees scheme:

State’s objectives for a return on its financial involvment

Outreach

Synergies with other financial instruments

Guarantees serves as factor of economic stimulation, and serve ambition to make a positive return for the state

As a public scheme, the guarantee serves a purpose of economic development Role of mobilizing energies and financial meansStimulation to entrepreneurship: encouragement to initiatives, « new blood », new ideasFacilitation for bankers : higher coverage for riskier projects (start ups, innovation, export…)

Accepting a reasonable rate of default in guarantee portfolios allows to support more projects SME risk can be reduced, but not totally avoidedDo not cast away the possible future Google or Apple!SME and innovation risks analysis do not abide to scientific rules and integrates elements of hazard Our objective : give a chance to all projects, with serious and motivated actors

Funding the guarantee system is profitable for the State point of view, as detailed in the next slide

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Guarantees : a central element of the system

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Titre de la présentation

Guarantee Fund

Bpifrancerisk

State /Regions /

E.U.

40% to 80% according to project type

Guarantees allocation create a stimulating business model on State support

Multiplier Guarantee share

From 3 to 22, according to risk expectation on type of project

Financingto SMEs

PROJECTS & SUPPORTED

INVESTMENTS

Profit

Employment

Added Value

+ Tax Returns

- Social Benefits

+ GDP Increase

A successful outreach

Large range of application and beneficiariesLoans (short, medium and long), Mezzanine, and equityCovers from 40 % to 80% of the lender’s riskTargets both valuable borrowers lacking collateral, and fast growing enterprises

Successful implementationOver 72 000 guaranteed files yearly€ 8 billion of financing guaranteed in 2013Outstanding liabilities of € 12,2 billionRisk sharing with over 150 partner banks

Serves the largest part of Bpifrance customers (90%)From Start ups, small companies (EU SME definition, up to 250 employees)…Up to larger companies on specific products (guarantee on investments abroad, « mezzanine

loans », performance bonds)

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Guarantees: position as a central element of the system

The guarantee coverage allows to extend the whole range of Bpifrance financing to more SMEsA leverage effect operates on other instruments: net final risk can leverage mor financingAll stages of enterprises life are supportedAn adapted resource exist for each stage of development and project

Better sustainability of the institutionGuarantee improves the business model of other activities, and allows a larger customer base

for lending and equity activities Risk reduction increases opportunities, making challenging projects acceptableOperating costs at group level are reduced by common due diligences and instruments.

Guarantee clients improve deal flow for other offer of financing The large supported population of guaranteed SMEs offers visibility on clients for other Bpifrance

products Use of accumulated data from previous operations creates a rich customer base

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Guarantees mean synergies and leverage effect on other financing instruments

A specific financing, only provided in France by Bpifrance : the «  development loan », or « contrat de developpement »

It belongs to the category of Mezzanine loans : a new mix « guarantees  / lending »They are long term loans (7 years), with a long grace period, based on intangible investments, and

requesting NO guarantee from the borrower.Patient capital, specially designed for financing intangible assets and immaterial investments

Offer is made possible thanks to an internal guarantee scheme covering 80 % of risk

A seducing form of financing They can bridge the gap for enterprises not ready to deal with an investorThey offer “easy” money for investments They do not apprehend the borrowers assets, which can be used for obtaining more classic loans from

banks

A successful implementation Created only 10 years ago, this type of loans represent now 25 % of loans provided by Bpifrance.Suits perfectly active, successful and profitable enterprises , representing most of the pertfolio

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3. Impact of guarantees on product engineering

03.Guarantees :From aspects of public policy to adapted instruments

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Public guarantees scheme:

Historic positioning

Contra-cyclical actions

New priorities : export and innovation

.

Traditional targets

Specific targeted applications

for the new driving actors of economic

growth

- The core targets for the use of guarantees:

- Traditional credit constrained companies

- The first age of the Guarantee

support

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From state policy objectives to application of guarantees

- Contra-cyclical guarantees (crisis)

- Supporting Exporting champions

- Strenghtening innovative enterprises

Guarantee on Start ups financingFor new companies , or less than 3 year old entities risk coverage : 60 % on loans, personal loans, leasing and short term facilities

Guarantee on investment financingCompanies of more than 3 years of age for renewal or capacity investmentRisk coverage: 40 % on medium or long term loans and leasing

Guarantee on financing for SME equity transferCompany shares bought by new owner(Change of generations, « new blood »)Risk coverage : 50 % on loans, personal loans

Guarantees on financing working capital needsProvide permanent resources in growing enterprises, improving financial structureNo restructuring for non sustainable enterprisesRisk coverage: 50% on loans

Guarantee on financing international developmentFinance investments dedicated to export productionFinance, through mother company, the financial needs of foreign subsidiaryRisk coverage: 50 % on loans, counter guarantee on some bank bonds

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01. The « classic » guarantee offer, related to historic missions

.

Support to demand stricken

companies

Restructuring financial profile for a sound positive

exit from the crisis

- Risk coverage quota increase

- Extended eligibility (companies size, sectors, temporary risk profile)

- Operational changes adapted to a crisis situation

- Guarantee on short term facilities

- Guarantee on the medium term loans for working capital needs

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01. Policy driven guarantee instruments: answering SME needs through the global crisis (2009-2010)

Allowing the implementation of a financing continuum

Risk coverage increaseUp to 90% (instead of 50%)Specfic funding Process respecting EU regulationl, with temporary loosened rules

Eligibility extension:Large companies could benefit from this supportUnitary risk limit increased

Operational improvements for this schemeSpecific mediation committeee in RegionsConcerted action with all public creditors and banksVariable fee, based on borrower’s quality (French central bank rating system)

Guarantee offer applicated to more financing For short term facilites confirmationFor medium term loans on Working Capital Needs

Recorded successAcceptable losses observed on the populationSurvey from beneficiaries attest survival for half of beneficiaries was due to this specific support

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3.

The « anti crisis » special scheme (2009 -2010)

.

Support to export -driven companies

Support to innovative enterprises

- Guarantee on incentive financing- Guarantee on foreign subsidiary

equity - Guarantee on the implementation

of a financing continuum,

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Two examples of enforcing policy objectives with adapted use of guarantees

- Guarantee on pre –equity preparation phase financing

- Guarantee on innovation loans- Guarantee for innovation targeted

equity funds- Guarantee on industrialization

phase of innovation - Guarantee on financing market

approach and I.P..

We make your prospecting easy:

UBIFRANCE export development support Coface prospecting insurance: covering the potential financial risk of your export development

We finance your development:Bpifrance Export Loan

Bpifrance minority share acquisitionCoface guarantee for bonds

and prefinancing

We insure your Export project:

Coface credit insurance: a comprehensive insurance for your contractCoface exchange insurance : neutralises your risk

We help your export investment to succeed:

UBIFRANCE establishment supportEstablishment back-up through the VIE (international business volunteer program)Coface investment insuranceBpifrance international project guarantee

MARKET PROSPECTING

ESTABLISHING INTERNATIONALLY

FINANCE YOUR DEVELOPMENT

SECURE YOUR PROJECT

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Titre de la présentation

Focus on…

expanding your business internationally

In each phase of your company’s development, we provide financing, guarantee, insurance, investment and support solutions that are complementary and adapt to your plans for conquering new markets.

How to motivate enterprises to invest in a international development effort ?

The constraint: Initial budget for exploring a foreign country can be high: traveling costs, legal costs, legal advice, costly

executives time…Many SMEs are dissuaded by expected initial expenses , from50 000 to 100 000 €

The answer: Immediate delivery of a long term loan, without request for collateral, covering initial expensesAvoids weakening the cash position of the SMENo request of collateral to secure the loanIf attemps fail to set foot in the target country, reimbursement over 6 or 7 years is easy

Investments in equity (purchase of local company, or creation of subsidiary) can also be financed by the same type of mezzanine loan Or via classic bank loan

A specific project guarantee is offered to SMEsBased on invested equity in subsidiaryCovers economic risks causing defaultComplements COFACE guarantee (on political risk)

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Financing making decisions easier for exporters

We help your innovative business project to materialise:

Pre-creation support

We accompany you in:Confirming the feasibility of your innovative projectPreparing the package and the partnership for your collaborative project

We encourage the entry of investors:

Seed loansDirect share acquisition Qualification as an “Innovative Business”, giving access to FCPIs (mutual funds for innovation)

We finance the development of your project:

IndividuallyDevelopment and innovation aidFinancing of the Research Tax Credit

In partnership

Aid for collaborative projects

InternationallyDevelopment of international collaborative innovation

We accelerate industrial and commercial launches :

Innovation loan

and facilitate obtaining bank loans:

Bank loan guarantee

TRANSFORM YOUR IDEA

REINFORCE YOUR CAPITAL

CARRY OUT YOUR PROJECT

MAKE YOUR STRATEGY

SUCCESSFUL

EXPLORE THE FEASIBILITY

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Titre de la présentation

Focus on…

Supporting and facilitating innovation projects,

The different financial solutions proposed by our teams can be provided in the form of grants, reimbursable advances, interest-free loans, profit-sharing loans, share acquisition and guarantees on bank intervention, depending on the risk and the state of advancement of your project

The challenge:Facilitate the decision for firms to engage the (costly) initial steps Financing patent purchase, R&D budget, access to visibility on the innovation feasabilityNegotiating costs and intellectual property protectionSetting adequate diligences for a collaborative project with another company

The answer:Immediate delivery of a long term loan, without request for collateral, covering initial expenses

No immediate consequence on the cash position of the SMENo allocation of the company’s assets to secure the loanIf attemps fail to set foot in the target country, reimbursement over 6 or 7 years is easy

Financing the early seed phase: developping prontotypesEquity partners cannot be convinced before sufficient convincing development is reachedThis period (crossing the death valley) can be deadly if funds are short

The answer:Innovation costs can be supported by a similar mezzanine loan, if business plan is credible

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Motivate enterprises to step ahead in their innovation projects

04.Guarantees allocation:

Beyond product definition, Attitude and partnership

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Public guarantee scheme:

Establishing active cooperation with banks

Building motivations

Developping partnerships with private financial intermediairies, and motivation for entrepreneurs.

A regular relation is established with financial intermediariesCreates trust, strong personal relation and illustrates common interest Constant dialogue with the 1000 skilled technicians in our networkAdditional visibility on risks, from accumulated experience, offered to the partner

A Successful multiplier effect on public moneyFor each € of risk or lending from Bpifrance, private partners are providing another €

Simplicity of message« Partnership and risk sharing offered for all cases, even for riskier projects »One stop shop for all the banker’s clientsStreamlined processes

A reliable and continuous support encourages initiatives of entrepreneursBpifrance rules sets limits to the pressure of banks on personal guaranteesConstant networking with all actors of SME support environment, creating opportunities Culture of success in our communication (club « excellence ») stimulates other SMEs

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4. Improving private financing involvement in the country’s modernization

Cumulated experiences and skills have to create value and credibility for a guarantee scheme

Cumulated different skills (on financing, on technology, on international practices ) help finding the best

form of support for a project and in the most rational way.

Entrepreneurs are accompanied , during their growth, by interlocutors of the same group sharing the

same attitude in favour of entreprenarial support.

Such factors add credibility on the risk mitigation effect brought by presence of Bpifrance in projects

Risk sharing and risk mitigation (reducing the probability of risk occurrence) are now essential to

convince bankers

The construction of the institution’s image helps mobilize the indispensable presence of commercial

banks to serve SMEs needs.

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Image and concept , as a reference for efficiency

The « all inclusive development institution »: a meaningfull benchmark for international counterparts.

Active Peer to peer dialogue and relationship with similar institutions

Participation in EU associations and programs (EUREKA, EUROSTARS)Specific Work Groups (AECM, Montreal Group with 6 major Development institutions of Canada,

Bresil, Russia, Mexico, China, India)

Bilateral cooperationActive policy of concluding agreements : exchange of good practices, organization of support to

collaborative projectsIncreasing number of multi-object cooperation through various financial instruments

Provision of Technical Assistance, to set up or adapt schemes and processes.So far, 18 direct assignments on guarantee entities, or innovation support agencies in Africa, and

Central Europe and thematic studies through European programs .

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Image and concept , as a reference for efficiency

Thank you

for your attention

Jean- Louis Leloir

International expertise

Direction of International affairs and Development

Bpifrance

[email protected]

tel + 33 1 41798396

cellular: + 33 680485659