Understanding the Capability Fund: What It Is and How It Works
Small and medium-sized enterprises (SMEs) play a vital role in sustaining the economy. According to the European Commission’s 2020 Small Business Act Fact Sheet, SMEs represent 99% of all businesses and create two out of three net new jobs. However, many SMEs face significant barriers to growth, including access to finance, the ability to commercialize new products and services, and the lack of digital skills. To address these challenges, the European Union (EU) established the Capability Fund, a financial instrument for SMEs in need of transformative investments.
What is the Capability Fund?
The Capability Fund, set up in 2021, is a €940 million financial instrument that provides grants and loans to SMEs. The funds are designed to support SMEs in developing key capabilities to grow and scale, including digitalization, technology adoption, new product development, and market expansion. The fund is managed by the European Investment Fund and will run until 2027.
How does it work?
The Capability Fund is available to SMEs across all sectors and EU member states. The funds are channeled through financial intermediaries such as banks, leasing companies, venture capital firms, and other private investors. SMEs can access finance through a portfolio of financial instruments such as loans, guarantees, equity investments, and hybrid instruments. The fund provides up to 80% of the total financing required for a project, with a maximum amount of €10 million per applicant.
The Capability Fund has a particular focus on supporting SMEs in less developed regions and those facing financing gaps or difficulties in accessing traditional funding sources. It aims to address market failures by promoting risk-sharing arrangements and supporting projects with long-term economic value.
What are the benefits of the Capability Fund?
The Capability Fund provides SMEs with access to finance and support services that would otherwise be unavailable or unaffordable. It enables SMEs to develop key capabilities to grow and compete in the global marketplace, such as:
1. Digital transformation: SMEs can use the funds to upgrade their digital infrastructure, develop e-commerce capabilities, and adopt new technologies such as artificial intelligence and the Internet of Things.
2. Innovation: SMEs can use the funds to invest in research and development, develop new products and services, and bring them to the market.
3. Market expansion: SMEs can use the funds to expand into new markets within and outside the EU, develop new supply chains and distribution channels, and establish effective marketing strategies.
4. Sustainability: SMEs can use the funds to adopt sustainable practices, reduce carbon emissions, and contribute to a low-carbon economy.
Examples of successful projects
The Capability Fund has already supported several successful projects across the EU, including:
1. A Spanish company that specialized in the development of software for virtual reality and augmented reality applications. The company used the funds to develop a new product line of 3D printing software, resulting in a 40% increase in revenue.
2. A Polish manufacturer of disposable medical equipment that used the funds to upgrade its production line and digitalize its processes, resulting in a 30% increase in productivity and a 20% increase in revenue.
3. An Italian company that produces eco-friendly cleaning products that invested in research and development to develop a new line of sustainable cosmetics. The product has gained popularity globally, resulting in a 50% increase in revenue.
Conclusion
The Capability Fund is a powerful tool that supports EU SMEs in developing key capabilities for growth, such as digitalization, innovation, market expansion, and sustainability. The fund provides access to finance and support services that would otherwise be unavailable or unaffordable and enables SMEs to compete in the global marketplace. By addressing market failures and promoting long-term economic value, the fund contributes to a more sustainable and resilient European economy.
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