Improving access to finance for SMEs
14.10.2012 - 23:16
An injection of hope for small businesses
Small and medium-sized enterprises in the European Union bring employment, creativity, innovation, growth and prosperity. According to the European Economic and Social Committee, their importance to the EU economy cannot be overstated.
Europe has some 23 million SMEs, comprising 97% of EU companies and generating 80% of new employment opportunities. The current economic crisis is making life tough for many of them, however, and has already forced the loss of an estimated 3.5 million jobs.
That is why the EESC is right behind the Europe 2020 strategy for growth and its flagship initiative aiming to create a better business environment for SMEs as part of a strong, globally competitive industrial base in the EU.
The call for investment
In the current climate, one of the greatest obstacles faced by SMEs is access to financing, with a banking sector now reluctant to offer credit without watertight guarantees. A study by Eurostat last year revealed that between 2007 and 2010, the proportion of unsuccessful loan applications rose in 19 of the 20 Member States providing data. Another problem is that many small businesses have traditionally been local concerns. But with weak domestic demand, they need guidance and expertise to help them move out into the global market if they are to survive.
As a first step, the European Commission has put forward an action plan to improve access to finance for SMEs. The proposal for a new regulation to attract risk capital funds is laudable. But over and above that, we also stress the need for the European Investment Bank (EIB) and the European Investment Fund (EIF), in close cooperation with the European Commission, to play a key role in investing in SMEs, through a full range of general and targeted instruments.
As regards the EIF loans for SMEs, more and more financial intermediaries in each Member State are promoting them and actively informing SMEs of EIF loan possibilities. Quite often, they are unaware of these EU tools created to help them. EIF initiatives such as JEREMIE (Joint European Resources for Micro to Medium Enterprises) have delivered excellent results. JEREMIE enables national authorities to deploy money made available under the European Regional Development Fund (ERDF) in the form of market-driven financial instruments. In short, JEREMIE helps SME access finance.
In Malta, my home country, the Bank of Valletta has been implementing the JEREMIE initiative since April 2011. Already, 308 SMEs have benefited from a sum total of €29.5 million, and this amount is expected to reach €51.04 million in 2014. Without JEREMIE, many Maltese SMEs would not have had access to investment loans. New energy-efficient equipment, an aircraft for an aviation school or a new catering establishment are a few examples of what has been achieved through JEREMIE. Behind each loan there is an SME, and behind each SME there is growth and employment contributing to the much needed economic recovery.
Taking account of diversity
However, the implementation of other legislative instruments is discouraging banks and asset managers from engaging in investments often addressed at SMEs. We must have instruments that meet the need for SME development. European SMEs are varied and heterogeneous, and a one-size-fits-all funding solution will not do. We need a full portfolio of diverse and innovative measures to reach this group of actors and take their specific characteristics into account. Social enterprises and the liberal professions, for instance, have different models of operation from traditional businesses.
Supplementing the Commission’s proposals, the EESC wants more alternatives to bank lending: promoting options that are often more properly geared to SME needs. The EU should encourage participatory and ethical banking structures – that avoid speculation and take a socially responsible attitude to investment – at European level too. Another model is crowd-funding, whereby people invest in small start-ups through an on-line appeal.
The Committee backs the Commission’s proposal to make the next round of innovative financial instruments, under the EU’s long-term budget for 2014-2020, simpler and more transparent. We consider that EU funding has a high leveraging effect.
Small-business entrepreneurs do not get the same opportunities to learn sophisticated managerial skills as their counterparts in big companies. So specific training programmes and tailored advice would support SMEs as they innovate and expand, especially into overseas markets. The EESC finds that the potential of the existing Enterprise Europe Network could be better exploited, and in particular its ability to offer financial counselling. The Committee considers it important to boost financial education for SMEs. Member States are strongly encouraged to participate in that process by setting up specific 'investment readiness' programmes for SMEs in close cooperation with SME organisations.
Flow of information
Another source of frustration among SMEs is the perceived lack of information on financing. In June, the Commission published a practical guide on how SMEs can access over €50 billion of public finance in the 27 Member States. The EESC calls for it to be disseminated widely. We are all too aware of the lack of promotional information concerning SME access to capital markets and other traditional SME finance markets, so information campaigns should be stepped up. A single, multilingual, on-line database bringing together different sources of SME finance, integrating European, national and regional measures, would be an added resource.