The European Commission will set a €1.7 million ceiling for company loan guarantees that do not need to be notified to the Brussels state-aid watchdog, a commission official said yesterday.

Guarantees of loans by governments allow smaller firms to borrow more easily to invest, which the commission sees as crucial to boosting innovation and creating jobs.

The commission will make its proposal tomorrow and it is expected to be welcomed by small businesses and most of the bloc's members. At present, member states determine the ceiling.

"I think it's a very important step in the right direction and it will solve 95 per cent of our problems.

"A ceiling of €2 million would have been better and solve 99 per cent of our problems," said Gerhard Hümer of small business lobby UEAPME.

The so-called de-minimis ceiling represents a softening of an earlier commission position. The EU executive has already proposed that direct aid to smaller firms could rise to €200,000 from €100,000.

But it had also wanted a similar cap on non-transparent aid such as loan guarantees.

"Excluding non-transparent aid from the de minimis rule would have resulted in a situation where most member states would not be able to use loan guarantees," according to Mr Hümer. - (Reuters)