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Access To Finance For SMEs In The EU

One of the most important issues facing SMEs is their difficulty accessing finance, particularly in the context of market expansion by Internationalization. The good news is, the European Commission is proactive in realizing this need and has been working to improve the financing environment for small businesses in Europe.

Small and medium-sized enterprises (SMEs) are crucial for business growth given their representation and contribution to the economies. Therefore it is vital that their growth is supported and innovation is encouraged. However, one of the most important issues facing SMEs is their difficulty accessing finance, particularly in the context of market expansion by Internationalization. The good news is, the European Commission is proactive in realizing this need and has been working to improve the financing environment for small businesses in Europe.

The Commission relies on Regulation, Budgeting and Coordination to enable better access to funds for SMEs. Various reforms have been made in the areas of improving regulatory framework, taxation, reducing reporting requirements.

One of the key priorities set out in Europe 2020 (EU's growth strategy for the current decade), is to facilitate access to finance for SMEs. Some of the Programmes driven by the EU to facilitate financial access are:

Competitiveness of Enterprises and SME (COSME) 2014-2020: To ease access to loans and equity for SMEs. COSME aims to make it easier for SMEs to access finance in all phases of their lifecycle - creation, expansion or business transfer. COSME funds the Enterprise Europe Network that helps SMEs find business and technology partners and understand EU legislation. It supports entrepreneurs by strengthening entrepreneurship education, mentoring, guidance and other support services;

Competitiveness and Innovation Framework Programme (CIP) financial instruments 2007-2013: To help SMEs raise equity and debt;

SME Instrument of the Horizon 2020 Framework Programme for Research and Innovation.

As per the SME Instrument, “Start-ups and small and medium-sized enterprises that are based in one of the EU’s Member States or are established in a Horizon 2020 Associated Country can receive EU funding and support for breakthrough innovation projects with a market-creating potential as part of the Enhanced European Innovation Council (EIC) pilot”. “The Enhanced EIC pilot’s stage funding will boost fast company growth and market-creating innovation”. [Ref]

The most relevant and interesting aspect of the Enhanced EIC pilot is its Accelerator program namely EIC Accelerator Pilot. “The EIC Accelerator supports high-risk, high-potential small and medium-sized innovative enterprises willing to develop and commercialise new products, services and business models that could drive economic growth and shape new markets or disrupt existing ones in Europe and worldwide.” [Ref]

EIC Accelerator Pilot offers SMEs grants, equity ranging from 50,000 to 15 millions Euros. Besides, it provides coaching and business acceleration services.

There is ample evidence that demonstrates the EU’s intent and serious efforts in the area of facilitating finance for SMEs. However, if we are still discussing about ensuring ease of access to funds even in 2019, it is because these initiatives still have a long way to make a real impact.

Business professionals, consultants and unilateral agencies have accurately captured the barriers. The remedial measures are thoughtfully documented in EU’s policies and framework as well. There is no doubt that the EU’s measures and initiatives will yield results by delivering social value and sustainable business. However, certain virtual barriers should also be eliminated or minimized that are currently increasing the cost of learning (regarding legal, regulatory, accounting, taxation) for the businesses. For many SMEs, the cost of learning is significantly high, given the language barriers. Overcoming this barrier without incurring cost, happens only when the SMEs invest significant amount of time in learning. In the age of rapid technological growth and intense competition, loss of time is loss of opportunity.

Therefore SMEs, require case studies. Case studies that cover a wide range of industries and how certain SMEs were able to successfully scale up in certain geographies, would act as a ready reckoner for aspiring SMEs. The combination of a business idea (product/service), target segment, competitive landscape and funding requirements are unique to every SME. Therefore, there can never be an end state in which all possible scenarios are addressed. But, with the sustained focus of EU over many years, is certain to make tangible impact, socially as well as commercially.

Once these working models act at the proof of concept, these can serve as blueprint for adapting beyond EU as well. The growing and future markets in the East and South Asia, Africa and South America need working models to refer to.

GT4SME is one such initiative of GIG Germany, and its consortium partners from Italy, Croatia, Turkey, Serbia that aspires to utilize the framework provided by the EU and demonstrate the implementation. The outcome of the project will document a case of an EU SME which can be internationalized while transforming digitally and scaling up in the partner countries, while access to funds are enabled through the available instruments of the EU.

Other references:

Finding EU business finance in 3 easy steps: http://ec.europa.eu/DocsRoom/documents/11344/attachments/1/translations

An action plan to improve access to finance for SMEs

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52011DC0870


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