Getting into debt: What’s it like to get a loan when you are a small business in the cultural and creative sector?

Exhibition operator Tempora jokes that it creates all the magic and spectacle of cinema, but without the easy digital distribution. Instead, the Belgium-based business physically packs the most astonishing scenes: The ruined city of Pompeii immediately after the volcanic eruption, the road trudged by immigrants to New York’s Ellis Island, the history of Islam in Europe, to bring the magic and immersion to fascinated audiences around the world.

It’s a valuable undertaking, not least because it’s exporting immersive European culture to the US and beyond. It’s also a successful business. The company’s Pompeii — The Immortal City exhibit generated EUR 1.5m in revenue over the past two years.

Yet it is really tricky to finance. Like cinema, the exhibition business requires immense upfront costs that are only paid back through ticket sales. Then, unlike cinema, exhibitions need to be transported physically to their location, and, once open to the public, morph into a service industry with all the service sector requirements — hospitality, safety, insurance, that accompany it.

Today, the EIF talks to Tempora’s Raphael Remiche about securing a loan through S’tart Invest, a financial institution supported by the European Investment Fund (the EIF) and the EU. Why? Because so few cultural and creative sector SMEs successfully find debt financing. Raphael’s experience in securing financing could help open doors to more cultural and creative SMEs to access the financing.

Nice to meet you — first and foremost, can you tell me what your loan was for?

Well, we had some large and exciting exhibitions to put on, for example, Pompeii. However something of this scale can take years to prepare — collecting the material, finding the best approach to transmit knowledge to people in the best way possible — before we ever start selling tickets. This, by the way, is a really common problem in the cultural and creative sectors! We didn’t want to divert all our financial resources to covering this in the interim as we would have created a cash flow problem, so we needed another type of financing.

However, banks really still struggle to understand the cultural and creative sectors. There are a few reasons for this — there is very little data on the sector for them to use, cultural and creative businesses often lack collateral for a loan, they have very specific cash flow or business models, niche sectors, you name it. But grants are not an option for us, they are better suited to charities, non-profits, and we don’t have the growth profile for equity investments.

You found something through a financial institution called S’tart Invest?

Yes, and S’tart actually gave us our first loan ten years ago so it’s something of a long-term relationship! S’tart is a Belgian financial institution that is supported by the EIF and the EU through a guarantee on its loan portfolio to the cultural and creative sectors. Before S’tart, our financing options were limited.

What did you have to do or prepare to get the loan?

There were a few things to prepare. S’tart needed to understand our business model. Fortunately, because they have experience lending to the cultural and creative sectors, they are familiar with this type of business model, and they also have more data than other financial institutions do to compare it to. I also needed to prepare a business case about why it was strategically important to develop the projects we were developing. Obviously, on the financial side, I had to be able to present our company’s financials, demonstrate collateral and repayment plans, and -present a clear understanding of challenges and risk.

How much work did this entail?

All in all, around six or seven days.

How did you find the process?

To be honest, S’tart is a really, really good partner. From a financial side, they do structure things so that they fit with our specific financing needs. They look at the numbers, structure something tailored. All that is good. However the focus on the cultural and creative sectors is invaluable. When you are an SME you very much need a partner with whom to test your ideas. When your lender knows about the sector, they can say “ah yes we’ve seen this work”, or “we have seen a lot of interest in this particular area” which gives us confidence.

So you have a loan. What is the advantage of a loan, over, say, equity, or even a grant, in your case?

As I mentioned, I think grants are much more for the charitable and non-profit end of the market which is not where we operate.

What a loan does is to treat us like a business. It has given us freedom, and we are the ones in control of our decision making.

S’tart of course instill in us the necessary discipline to repay, discipline that we have proven time and time again. For financial institutions, debt is less risky than equity, it is also cheaper. Therefore, debt is more available to the cultural and creative sector than some of the other forms of financing. That said, debt is one step on the path to growth, and we are looking now at a more hybrid financing, for example, looking for new shareholders, new equity. And debt has very much been part of that journey!

Raphael Remiche is chief financial officer of Tempora, which designs, builds and operates temporary, permanent and touring exhibitions. www.tempora-expo.be

The EIF has been deploying EU resources into the cultural and creative sectors (CCS) since 2016, and has benefited 229 SMEs in eight countries.[1] It does this by guaranteeing a portion of the bank’s loan portfolio to the CCS, therefore taking on some of the risk of lending to the sectors.

We are also using EU resources to enhance their understanding of this important sector through technical assistance, knowledge-building and networking measures.

For more information on the Cultural and Creative Sectors Guarantee Facility (CCS GF), the Capacity-Building Window, a full list of banks and funds focusing on lending to the CCS and supported by the EIF and EU, please go to https://www.eif.org/what_we_do/guarantees/cultural_creative_sectors_guarantee_facility/financial_intermediaries.htm

[1] Figures as of the end of 2017