It is reported that the funds are a part of an $800 million initiative that was announced last March. The funds were designed to cope with the coronavirus pandemic. The technology giant announced that it will invest in two European Investment Funds. It will provide $15 million in loan capital to 1,000 European small businesses. Additionally, it will invest $10 million in European Investment Fund’s venture capital fund that is backing 200 life sciences companies.

The European Investment Fund belongs to the European Investment Bank group, which is a lending arm of the European Union. Google and the Inter-American Development Bank will work together to allocate $8 million for small companies in Latin America, media reports said.

Juan Rajlin, treasurer of Alphabet and Google, said in a blog post, “We have partnered with two innovative government-sponsored investment initiatives, with the belief that public-private partnerships can provide creative solutions to meet the needs of small businesses in this critical time.”

According to the blog post, allocation of $8 million to small businesses will help to increase capital available in the region. By the numbers, it is reported that two out of three people in the region are employed by small businesses. In the US, Google had collaborated with the Opportunity Finance Network which played a part in extending Grow with Google Small Business Fund’s interest loans worth $90 million.

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Fabio Bertoni and Anita Quas, professors of finance at emlyon, and Massimo G. Colombo, professor of entrepreneurship and entrepreneurial finance at Politecnico di Milano School of Management, analysed data collated on over 85,000 loans granted to 57,000 individual French SMEs between 2002 and 2016, for a total amount of €4.65 billion.

During the study, SMEs who received these loans were matched with a ‘twin’ firm that had not benefited from this scheme. The twin firms were almost identical to beneficiary SMEs in terms of industry, location, current and predicted growth, employment rate, size and age. These twin firms gained funding through more traditional bank loans, other forms of external investment such as venture capital, or did not receive any added funding at all.

Professor Massimo G. Colombo said:“Most banks act very conservatively. If they think a venture has any possibility of failing or being too risky, it is likely they will be very cautious in giving a loan. This means that many SMEs which are perhaps riskier ventures, but have the capacity to be successful, are unlikely to receive funding. These EU-guaranteed loans step in as a security buffer to banks, ensuring potentially profitable SMEs receive the funding they deserve.”

The study found that over the period studied, SMEs who received these EU-guaranteed loans outperformed those who didn’t by experiencing on average a;

• 9% additional asset growth
• 7% additional sales growth
• 8% additional employment growth
• More than 2.5% additional productivity growth
• 7% decrease in the likelihood of defaulting.

Professor Fabio Bertoni said: “The results are consistent with the fact that one of the biggest blocks to SMEs’ growth is a lack-of financing, and experiencing financial constraints. In fact, 30%-40% of EU SMEs cited limited funding as a very significant reason for lack of growth in an EIF survey. These loans alleviate SMEs financial constraints, easing the pressure on firms and allowing them to invest in what they deem the most important areas for growth.”

Previous research has stated that 85% of new jobs in the EU come from SME’s. The researchers suggest that it is no surprise that schemes such as these EU-guaranteed loans are beneficial to the EU in terms of job creation.

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