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European Commission study unveils financial gap for the cultural and creative sector

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- Study warns that the European creative and cultural sector is missing billions of euros in credits: the launch of the Financial Guarantee Facility is much needed

European Commission study unveils financial gap for the cultural and creative sector

A new study by the European Commission unveils an important financial gap for the creative and cultural sector, which is missing billions of euros in credits. According to the study “there is a financing gap in the cultural and creative sector due to lack of collateral, combined with a lack of managerial skills, which ranges from €8 billion to €13.3 billion.” The situation, which is likely to get worse in the next seven years, is calling urgently for the implementation of the highly anticipated Financial Guarantee Facility - which was supposed to be the most innovative strand of the Creative Europe framework programme.

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Unfortunately the Financial Guarantee Facility will only operate from 2016 on, despite the fact that the access to finance had been pinpointed since the very conception of the new programme as one of the main problems that the sector has to face.

The new survey, meant to collect data for the launch of the Financial Guarantee Facility, shows some of the main reasons behind this financial gap. The first one is the fact that financing is not diversified enough and still relies too much on state subventions. Among the creative and cultural sector, the audiovisual one seems to use many more bank loans (53% of the respondents used loans for audiovisual projects against 34% in other cultural sectors), probably because of the financial and fiscal instruments, like the Belgian tax shelter system, active in some countries that stimulate the use of bank loans.

The second one is the lack of sound knowledge of professionals from the sector on the one hand, who often do not present a solid business plan to private financial institution when asking for a loan; and of the financial institutions on the other, which do not possess adequate expertise to evaluate the loan request. Some countries tried to solve this problem by establishing organisations specialised in the financing of the sector. It is for example the case of the Dutch Cultuur-ondernemen.

Quite surprisingly, banks active in the creative and cultural sector reported that the main reasons for refusal are the lack of collateral or (private) equity and poor business plans included in the application, and not the default rate, which in fact is not higher than the one of SMEs in general (around 2%).

What the study underlined is that the problem of access to finance that the sector faces is multidimensional and even if a guarantee mechanism lowering the financing risk for banks can improve the situation it does not solve it completely. One must not forget that capacity building is also essential: professionals should be given the sufficient business skills to present a good plan in order to increase their chances of getting a loan. On their side, the financial institutions should have the adequate knowledge to evaluate the requests. Trainings were actually envisaged by Creative Europe as part of the cross-sectoral strand, and together with the Financial Guarantee Facility were thought to be the foundation of a “broad ecosystem of measures” stimulating the economic development of the cultural sector and generating a leverage effect for financing that, combined with the potentiality of the new forms of finance such as crowd-funding, should lower investment barriers and strengthen the sector greatly.

Click here to download the study.

 

(The article continues below - Commercial information)

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