At the end of 2019 we announced the creation of a 30 million euro Fund dedicated to Italian SMEs: the October Italy Fund. The Fund was initially subscribed by some of the main Italian Confidi (consortia that provide guarantees to facilitate companies in accessing finance) with the support of the EIF (European Investment Fund).
EIF will support the Fund through the InnovFin SME Guarantee Facility, established at the initiative of the European Commission and supported by Horizon 2020.
The October Italy Fund will start investing in eligible Italian projects as of April 2020. Let’s see what the characteristics of this Fund are and how it will contribute to the financing of projects on the platform.
The different types of October investors
As you know, there are two types of investors on October:
- Private lenders like you, who lend from €20 to €2,000 to projects they choose among all those published on the platform,
- Public and private institutional investors, who invest through the Funds managed by October: the October Fund and now the new October Italy Fund.
The October Fund automatically invests 51% of the amount in each project published on the platform. Public institutional investors such as the EIF, private institutional investors such as insurance companies, banks or family offices and the October management participate in this Fund.
The October Italy Fund will invest alongside private lenders and the October Fund, co-financing eligible Italian projects.
What is the mission of the October Italy Fund?
The October Italy Fund has been established with the objective of facilitating access to credit for Italian SMEs. It will operate alongside institutional investors and the community of private October lenders in providing loans to eligible companies.
Thanks to the contribution of the Confidi and the intervention of the InnovFin SME Guarantee Facility, the October Italy Fund will finance projects at a lower interest rate, therefore eligible companies will benefit from a reduction in the overall cost of financing.
How will the October Italy Fund participate in the financing of projects?
The projects presented on our platform are financed by the community of private lenders together with institutional investors who lend through the October Fund. Each time a project opens for funding, the October Fund automatically invests 51% of the amount, while the remaining 49% is available to lenders. The Fund completes the amount not subscribed by private lenders.
For projects co-financed by the October Italy Fund, funding will work slightly differently. For each company that will benefit from the support of the October Italy Fund we will publish 2 separate projects on the platform:
- one open to lenders and the October Fund,
- the other reserved exclusively for the October Italy Fund.
The October Fund and private lenders will be able to lend as usual, according to the rules and percentages described above. The October Italy Fund, on the other hand, will automatically invest 100% of the amount reserved for it. At the end of the subscription the company will receive the total amount of the two projects.
Let’s take an example. An Italian company, eligible for funding from the October Italy Fund, borrows €500,000 over 36 months at 6%. The two projects published on the platform would have the following configuration:
- Project 1: 250.000€ over 36 months at 6%. The project will be financed by the October Fund (at least 51%) and retail lenders (up to 49%).
- Project 2: 250.000€ over 36 months at 3%. The project will be financed entirely by the October Italy Fund.
Once both projects are closed, the company will receive the total amount of funding. As always, repayments will take place on a monthly basis and they will include principal and interest. Retail lenders and the October Fund will receive 6% annual interest, while the October Italy Fund will receive 3% interest. The overall interest rate for the company will therefore be 4.5%.
Each time the October Italy Fund participates in the financing of a project, lenders will be informed by a disclaimer in the project description.
What will be the impact for the lenders?
The intervention of the October Italy Fund will allow SMEs to finance themselves at better economic conditions, but will not entail any change for private lenders who will continue lending in the same way as always. Put differently: private lenders and the October Fund will finance projects at the same interest rate, the October Italy Fund will finance projects at a lower interest rate. The returns of private lenders will remain the same, as the reduction of the overall cost of financing for SMEs is determined solely by the intervention of the October Italy Fund.