Central Guarantee Fund

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The Central Guarantee Fund is an instrument established by Law no.662/96 that is designed to assist Italian small and medium-sized enterprises by providing state guarantees on bank loans.
What are the main aims and objectives?

The Central Guarantee Fund primarily aims to enhance the ability innovative startups to obtain financing, this is particularly significant for companies that might not have enough collateral to secure loans independently. By offering guarantees, the funds make it easier for startups to access credit, which in turn can facilitate their investment in personnel, infrastructure, and business development within Italy. A key objective of the funds is to support the economic growth of these enterprises, which are often considered the backbone of the Italian economy.

How does the program work?

The Central Guarantee Fund offers a maximum guaranteed amount of €2.5 million (increased to €5 million during the pandemic) for each SME with fewer than 500 employees, facilitating substantial financial support without fees or commissions payable. Typically, the guarantee coverage is equal to 80% of the loan although there are exceptions where this rises to 100%. The first exception is for loans that are to be repaid within 72 months. The second exception is in instances where the loan does not exceed the following:

  • Twice the companies 2019 employee costs
  • 25% of the companies 2019 annual revenue
  • Not exceeding €30,000

Guarantees can either be provided directly for the financial transaction or indirectly through guarantors who guarantee the operation in the first instance before seeking reinsurance through the fund. The beneficiaries must request assistance by submitting their application to the financing entity or guarantor who will apply on their behalf via the online platform.

What is the overall cost?

Since 2013, €2 billion has been guaranteed to innovative startups through the Central Guarantee Fund. However, it is not known how much of this has been recouped.

How was it implemented?

The Central Guarantee Fund is an instrument established by Law no. 662/96 (art. 2, paragraph 100, letter a) and has been operational since 2000. To help entrepreneurs interested in accessing the Fund, there are more than 500 banks, consortiums and financial intermediaries affiliated with the Fund. These include Artigiancassa, UniCredit, BFF Bank and Intesa Sanpaulo.

Over time, the Fund's operations have been expanded and adjusted to address specific challenges. For instance, in response to the COVID-19 pandemic, the Italian government implemented measures to extend the reach and effectiveness of the Fund. This included raising the coverage for eligible operations to 90%, with some guarantee consortiums offering up to 100% coverage for financed amounts with a duration of up to six years.

Moreover, the infrastructure that underpins the Fund was used to reach companies outside the SME group targeted by the Central Guarantee Fund. Initially, the government committed EUR 100 billion for loan guarantees, but with demand outstripping this amount, the European Commission approved an increase to EUR 400 billion. This expansion allowed for a more comprehensive support structure, with 60% of the guarantees targeting domestic companies through the Fondo di Garanzia per le PMI and 40% targeting companies working in international markets through the state export agency Servizi Assicurativi del Commercio Estero (SACE).

What impact has been measured?

From 2013 to 2023, 16,610 applications have been accepted which has resulted in loans worth over €2.5 billion being granted to 14,480 innovative startups of which over €2 billion has been guaranteed through the fund. The average loan disbursed is equal to €173,175 and the average duration of the loan is 61.4 months.

What lessons can be learned?

The Central Guarantee Fund (Fondo di Garanzia per le PMI) has played a crucial role in supporting small and medium-sized enterprises (SMEs) by providing guarantees for loans, thereby facilitating access to credit. Analyzing the Fund's performance and operational framework reveals both limitations and valuable lessons that could offer lessons for policymakers.

  1. Importance of Flexibility: The Fund's response to the COVID-19 pandemic demonstrated the importance of having flexible mechanisms that can be quickly adjusted to meet changing economic conditions and needs.
  2. Necessity for Simplification: Simplifying the application and processing procedures can enhance the effectiveness of the Fund, making it more accessible to a broader range of SMEs.
  3. Targeted Support: Tailoring support to the needs of different types of SMEs, such as by considering the sector, size, and financial health, can improve the impact of guarantee funds.
  4. Economic Stabilization Role: The Fund underscores the role of government-backed financial instruments in stabilizing the economy during crises by ensuring that SMEs continue to have access to credit.
  5. Comprehensive Support Ecosystem: Loan guarantees should be part of a broader support ecosystem that includes grants, equity financing, and advisory services to address the multifaceted challenges faced by SMEs.
  6. Monitoring and Evaluation: Continuous monitoring and evaluation of the Fund's impact are crucial for making data-driven adjustments and improvements.
  7. Preparedness for Future Crises: The experience with the Fund highlights the need for preparedness and the ability to rapidly deploy support in future economic downturns.

 

 

 

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom