* Small firms squeezed by credit crunch get unusual help
* Capital requirements constrain some forms of bank lending
* Local government helps with first-loss guarantee
By Alan Wheatley and Stephen Jewkes
BOLOGNA, Italy, Oct 18 Companies, banks and
local authorities are seeking innovative ways to help family
firms in Italy's Emilia-Romagna to survive a credit crunch
brought on by the euro zone debt crisis.
The search for solutions, which include partial loan
guarantees and steps to bolster the creditworthiness of small
suppliers, reflects historically strong community links in the
region of north-central Italy.
Italian companies complain their borrowing costs are higher
than those of competitors abroad, and the measures aim to make
cheaper credit more readily available to smaller firms.
The regional government is making 70 million euros available
to guarantee the first part of any losses on certain types of
loans, Gian Carlo Muzzarelli, Emilia-Romagna's minister for
business, said in an interview.
Marchesini, a packaging company with annual turnover of
about 200 million euros, has agreed with Banca Popolare
dell'Emilia-Romagna to backstop loans to some of its
sub-contractors so they pay the same interest rate as it does.
"We cover them with our umbrella," said Maurizio Marchesini,
the company's chief executive.
The arrangement is in Marchesini's interest because the
rigidity of Italy's labour laws means it makes only about 10
percent of the components for its packaging machines itself. It
buys the rest from local suppliers, some of which are under
"If it's not possible to have internal flexibility, you're
obliged to find it in other ways. So it's easier to have
subcontractors," said Marchesini, who is also regional president
of the Confindustria employers' association.
Other firms that form the core of Emilia-Romagna's
industrial clusters are helping in more traditional ways.
Franco Manfredini, head of an eponymous ceramic tile maker,
said he was extending buyer's credit for as long as 120 days,
twice as long as usual.
A CAPITAL IDEA
Giampiero Bergami, regional head of Unicredit's network for
family and small and medium-sized enterprises, welcomed the
government's first-loss initiative but said it would not reduce
the capital the bank must set aside for the loans involved.
Unicredit is exploring an alternative. It is working with
two big companies, with a combined turnover of about 2.5 billion
euros, to try to organise their supply chains as a single legal
Contractors and sub-contractors would sign multi-year supply
deals with the large firms, which typically account for most of
their turnover in any case, thus underpinning their business and
strengthening their creditworthiness.
This would give Unicredit greater confidence to provide
working capital to suppliers by "factoring" - buying their
future invoices for cash at a discount - something it usually
does not do now because the firms are too small.
"Should this project take shape, I could use factoring as
the main tool to buy their credit - without recourse - because
at that point I'm not dealing with a guy with 1.5 or 2.0 million
euros in turnover; I'm dealing with a legal entity with turnover
of 25 to 30 million and this legal entity has contracts in place
for 3-4 years," Bergami said.
Crucially regulators require banks to set aside less capital
for factoring than for normal loans, meaning that such financing
is cheaper to provide.
Bergami said the scheme would also give him a much clearer
picture of the dynamics of the industry and of the supply
chain's investment needs.
Mutual support extends to the industrial level. In Sassuolo,
which makes 80 percent of Italy's ceramic tiles, companies are
sharing space in trucks to reduce transport costs.
Firms also think nothing of sharing knowledge with clients
and suppliers, said Emilio Mussini, chairman of Panariagroup
In a country that is a patchwork of regions and communities,
local relationships are especially strong in Emilia-Romagna.
Cooperatives are deeply rooted in the region, which was long a
bastion of the Communist Party.
If a company boss and his employees rub shoulders in the
local café and send their children to the same school, the firm
lays off staff only as a last resort. To do so would damage its
all-important reputation among suppliers and clients.
This behaviour might not maximise profits but yields returns
in the long run, said Stefano Zamagni, an economics professor at
the University of Bologna, the regional capital. "A strong
cooperative network of firms accumulates social capital, which
facilitates cohesion," he said.
That's why, Mussini said, one of his factories damaged in a
deadly earthquake that struck Emilia-Romagna in May was able to
resume production within 90 days without any government help.