Education is an essential element of entrepreneurship. Studies show that students who receive entrepreneurship education are not only more likely to be employed, but also more likely to start their own companies. With that in mind, the European Commission has proposed a series of actions that will help expose students to entrepreneurship and, as a result, help create jobs throughout Europe. Full story
Access to finance: instrumental in SME success
While small and medium-sized enterprises (SMEs) are crucial to Europe’s economic well-being, they often find it difficult to secure financing. To tackle this issue, the EU has developed tools specifically aimed at giving SMEs greater access to loans and equity finance: these financial instruments, funded under the Competitiveness and Innovation Framework Programme (CIP), have a strong track record of success.
The Small Business Act (SBA), along with the recent SBA Review, aims to encourage and support SMEs in taking full advantage of the global economy. Access to finance is critical for this, especially for small start-ups and enterprises looking to break into new innovative markets.
However, SMEs often struggle to convince financial institutions to invest in them or lend to them. This is especially true in sectors where there are few private investors. A recent European Commission online consultation found that 90% of respondents were in favour of supporting better access to finance– venture capital and loans – to support the start-up and growth of SMEs.
Key to success
In order to address this issue head-on, the EU has established tools specifically targeted at SMEs. The Competitiveness and Innovation Framework Programme (CIP) for 2007-13, which aims to improve the competitiveness of European enterprises, provides financial instruments under its Entrepreneurship and Innovation Programme. These instruments enable financial institutions to invest in or lend to small businesses that might otherwise not receive the financing they need due to their perceived ‘risk’ or lack of collateral.
In other words, these instruments, to which nearly one-third (€1.1 billion) of the CIP budget has been allocated, are designed to enable SMEs to flourish by making sure that access to finance is no longer a barrier to success.
The instruments are not directly available to SMEs but are implemented by the European Investment Fund (EIF), which acts on behalf of the European Commission and works with selected financial institutions. The tools have been specifically developed to cover areas of the market where access to finance is difficult and to target SMEs’ start-up, expansion and business transfer phases.
There are two kinds of tools provided through the EIF: the High Growth and Innovative SME Facility (GIF), which provides venture capital, and the SME Guarantee Facility (SMEG), which guarantees portfolios of microloans and larger loans.
The High Growth and Innovative SME Facility (GIF) aims to improve access to finance for the start-up and growth of SMEs and to invest in clean technology or eco-innovation . The facility has already had a positive impact. By the first quarter of 2011, 19 GIF agreements had been signed with venture capital funds, targeting investments in 17 participating countries and committing some €221.2 million in EU investment. Three of these venture capital funds are investing in eco-innovation across Europe.
Innovative SMEs in their early stages, such as Danish natural dietary supplements firm Fluxome, have benefited from these EU-supported investments: €5 million enabled the firm to apply its technology and know-how to bring a new product to market. Resveratrol, a compound found in grapes and berries, has been reported in several studies as having anti-ageing, anti-inflammatory, cardiovascular and cancer-protective properties.
“With the help of CIP funding, Fluxome has, within a short time frame, developed from a start-up company to a product- and sales-oriented organisation,” says Fluxome’s President and CEO Steen Andersen.
EU-supported venture capital has also enabled other SMEs, such as Latvian business directory company Interinfo, to expand and fulfil their potential. With the support of an EU-backed venture capital fund, the company was able to develop a fast web-based service complete with new mobile applications. As a result, Interinfo is now one of the largest professional sales organisations in the Baltics.
Realising growth potential
The SME Guarantee Facility (SMEG), on the other hand, guarantees bank loans to SMEs in order to help small firms with growth potential but limited or no collateral. By the end of March 2011, some 35 agreements had been signed with financial intermediaries from 15 countries, with EU commitments amounting to some €279 million. And by the first quarter of 2011, almost 130 000 SMEs had received financing supported by SMEG, through 144 383 loans.
Guarantees for bigger loans have helped European SMEs to realise their growth potential. For example, Biotech is a key player in the Hungarian medical market, producing and trading orthopaedic, trauma and spine implants and providing mobility solutions for patients. It recently became clear, however, that the firm needed additional space if it was to develop and grow.
In 2010, the company received a loan of nearly €500 000 supported by SMEG to buy a new factory, warehouse and office in Diósd near Budapest. An R&D centre was also created and, thanks to this recent expansion, the firm has increased production and research and has the capacity to take on another 28 employees during 2011.
Helping SMEs access finance is vital to ensuring that the backbone of Europe’s economy, its primary source of growth and job creation, remains healthy and strong in these uncertain economic times.
Additional information on CIP financial instruments is available on the following websites:
You can find further success stories at:
Venture capital for innovative firms
The primary objective of the High Growth and Innovative SME Facility (GIF) is to improve access to finance for the start-up and growth of SMEs and to invest in clean technology or eco-innovation . The GIF provides risk capital – usually in the order of millions of euros – for innovative SMEs in their early stages (GIF 1 ) and risk capital for SMEs with high growth potential in their expansion phase (GIF 2 ).
Under GIF 1, the EIF can usually invest 10-25% of the total equity of the intermediary venture capital fund or up to 50% in specific cases, while under GIF 2 it can invest 7.5-15% of the total equity of the intermediary venture capital fund or, exceptionally, up to 25%. It is estimated that the GIF will reach hundreds of SMEs.
Backing the loans that help small businesses
The SME Guarantee Facility (SMEG) guarantees those banks lending to SMEs. This is designed to help small firms with growth potential but limited or no collateral to obtain loans.
Microcredit guarantees are also available for loans of up to €25 000 to micro-enterprises – particularly entrepreneurs starting a business – as are equity and quasi-equity guarantees. These guarantees are targeted to support investments in businesses with up to 250 employees.
Finally, the SMEG offers guarantees to support securitisation structures, in order to assist financial intermediaries in mobilising debt finance for SMEs.
It is estimated that the SMEG will reach approximately 315 000 SMEs.
Supporting speech therapy and healthy eating
Microloans have transformed lives. Manuela Voigt was able to set up her speech therapy clinic in Thale, Germany following a €25 000 loan from German lender KfW (Kreditanstalt für Wiederaufbau) which was guaranteed by SMEG. Banks had previously shown no interest in lending her money after she graduated with a diploma in speech therapy. Her clinic, which provides support to children, teenagers and adults, has gone from strength to strength and she expects to recruit another two members of staff in the next few years.
Similarly, a microloan of €20 000 from the First-Step Microfinance Institution helped Almaz Abdiez provide healthy eating canteen facilities to schools in Ireland, once he realised that banks were reluctant to lend to small businesses. Happy Foods has since gone on to savour the taste of huge success and support from students and parents.
Directorate-General for Enterprise and Industry,
Financing Innovation and SMEs Unit
The text only of the articles can be republished as long as the source of the article is quoted: Enterprise & Industry magazine (http://ec.europa.eu/enterprise/magazine/index_en.htm), © European Union, 2008 - 2012