Applicability of the SME supporting factor for financing private purposes

Where a natural person’s business activities meet the criteria for an SME, does the SME supporting factor according to Article 501 CRR also apply to exposures from financing private investments of this natural person not directly related to that business?

For the classification as SME, Article 1 of the Annex to Commission Recommendation 2003/361/EC requires, for being considered an ‘enterprise,’ to be “engaged in an economic activity, irrespective of its legal form”, and explains: “This includes, in particular, self-employed persons and family businesses engaged in craft or other activities, and partnerships or associations regularly engaged in an economic activity.” This suggests that natural persons do qualify as enterprise, and therefore as SME, for their engagement in an economic activity. As a consequence, they would not qualify as SME for any private activities where this natural person is not engaged in any economic activity.  In many cases, the natural person will be liable to private and business-related obligations with all its assets. In other cases, a more explicit distinction between the private and business sphere is established in the applicable laws or the respective credit contracts (e.g. where the lending institution has no recourse on private assets, like the primary residence, for credit obligations from financing the economic activities of a self-employed person or of a family business, unless such private assets have been explicitly pledged for financing received for the economic activities). Also the other way round, credit obligations from financing private purposes, like for a new TV or for buying a house as own residence, might continue to become due irrespective whether the economic activities of a  self-employed person remain viable.