The EU and SMEs

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Introduction

Small business owner Creating employment both in Ireland and throughout the European Union is key to recovery from the global financial crisis.

More jobs will generate wealth, promote growth and strengthen Europe’s position as a world economic powerhouse.

And with two thirds of all private sector workers employed in small and medium sized enterprises (SMEs), protecting their jobs and stimulating their businesses is crucial to restoring financial growth.

An incredible 99 per cent of all European businesses are, in fact, SMEs and they’re the backbone of the European economy as they’re primarily responsible for wealth and economic growth within the EU.

They also play a key role in innovation and research and development (R&D), which in turn creates more jobs.

Under EU rules an SME is officially defined as being an independent company with fewer that 250 employees. Its annual turnover should not exceed €50 million, or its annual balance sheet be over €43 million.

The definition is not just an interesting statistic, it’s used to determine which SME companies can benefit from EU programmes.

SMEs are also divided into three categories according to size. Mico-enterprises have fewer than 10 employees, small enterprises have between 10 and 49 staff and medium sized enterprises are those with more than 49 and less than 249 workers.

The percentage of small enterprises in Ireland is twice as high as the EU average and the percentage of medium-sized enterprises is also significantly higher.

According to the Irish Small and Medium Enterprises Association (ISME) there are some 230,000 of companies in Ireland employing less than 50 people.

They might be small in size but together they contribute over $10 billion to the Exchequer annually and employ 900,000 people.

Despite the challenges faced by SMEs they’re playing a vital role in the recovery and sustained growth of Europe’s economy and that’s why the EU is committed to providing them with support.

SME Support

Baker The spirit of entrepreneurship is thriving in Ireland. We’re willing to go out on our own in business and admire those who do.

A Eurobarometer survey conducted in 2009 found that in Ireland entrepreneurs are ranked above all other professional classes and about half of all Irish workers would prefer to be self employed.

But businesses need support and an environment in which they can grow successfully, and that’s where being part of the European Union can help.

Part of the European Commission’s role is to promote successful entrepreneurship and improve the business environment for SMEs, so they can realise their full potential in today's global economy.

The Commission’s department responsible for SME policy and support is the Directorate-General for Enterprise and Industry. It provides information on promoting entrepreneurship, accessing markets and ensuring good practices in SME policy.

The central pillar to supporting SMEs is providing an open market across Europe where all businesses, regardless of size, can compete fairly.

The EU’s open, Internal Market also operates under a set of rules that ensures all SMEs provide the same basic health and safety standards in their goods and services.

That’s good for both businesses and consumers because it means companies compete on a level playing field and purchases are protected under common EU consumer legislation.

SMEs have to be supported most of all at local level, so the Commission works with Member States to develop coordinated national policies aimed at promoting entrepreneurship.

It also provides a network of support that helps SMEs take advantage of the EU Internal Market and all Member States are committed to implementing the Small Business Act for Europe (SBA), which recognises the importance of SMEs to the EU economy.

Small Business Act

The European Union adopted the Small Business Act (SBA) in 2008 with the aim of making it easier to start and run a business.

Basically, the act is an ambitious package of policies guided by a ‘Think Small First’ principle designed to put the interests of SMEs at the heart of EU decision-making.

That means when new EU regulations or directives are proposed the effect they’ll have on small and medium sized businesses has to be taken into consideration.

The economic crisis has presented SMEs with new challenges, not least of which has been the problem of accessing finance and an Action Plan of measures aimed at tackling this and other problems was introduced alongside the SBA.

File with EU logo As the economic challenge continues, the SBA will continue to be monitored throughout the EU to see its effects on the ground and ensure SMEs are given the best chance possible to survive the financial crisis and thrive into the future.

Under the SBA all new European legislation now passes through an ‘SME test’ to ensure laws are business friendly and there’s been much progress in the cutting of the unnecessary red tape that will save businesses billions of euro.

Simplified EU state aid rules have made it easier for Member States to give financial assistance to SMEs and a new directive on late payments ensures that small contractors carrying out work for public bodies have to be paid within 30 days of the job being completed.

New policies will continue to be introduced when needs are identified and the Commission has appointed an SME Envoy to open up channels of communication with SMEs and their representative organisations so they can be better involved in the decision making process.

It will also become easier and cheaper for new SMEs to start up and do business throughout the EU thanks to a new EU European Private Company law while a proposal on lower VAT rates for labour intensive services is designed to have a positive effect on small businesses offering services such as hairdressing, catering and repair services.

New and budding entrepreneurs are also being encouraged through an Erasmus programme under which they can gain experience and insight by spending time working with an SME in a different country.

Woman entrepreneurs are also being helped by the European Network of Female Entrepreneurship Ambassadors that was set up in 2009. There are ten Irish businesswomen working as ambassadors under the initiative who are all leaders in their field and who now provide insight as advisors to future female entrepreneurs from Ireland.

The Commission also introduced European SME Week, the first of which took place from May 25 to June 1, 2010. In Ireland a series of lectures and workshops took place around the country designed to provide information on what support is available from EU and national bodies as well as regional and local authorities. The most recent European SME Week took place in October 2011.

The European Commission has reported good progress in the implementation of the SBA but work will continue to make it easier for SMEs to flourish, even in times of economic difficulty.

Financial Support

Support for SMEs, both practical and financial, is central to the European Commission’s Competitiveness and Innovation Framework Programme (CIP), which was adopted in 2006 and covers the period from 2007-2013.

It includes an Entrepreneurship and Innovation Programme designed to promote entrepreneurship, competitiveness and innovation and it targets all types of companies from medium sized enterprises with high growth potential to the smallest micro-businesses and family-run firms.

As part of this programme, the EU has created a number of financial instruments for businesses and put aside a budget of over €1 billion to facilitate access to equity loans or financing through a financial intermediary.

Even in times of economic difficulty, there are still lots of options for funding SMEs and the EU’s access2finance website explains some of the steps Irish entrepreneurs can take to find financial assistance.

The Enterprise Europe Network was also set up to help SMEs make the most of the European marketplace and ensure they benefit from the Internal Market as much as bigger companies.

Enterprise Europe Ireland network points include Enterprise Ireland and chambers of commerce in Dublin, Cork, Galway, Sligo and Waterford. Network points can provide information and practical advice on market opportunities, European legislation and policies relevant to a company or sector.

Enterprise Europe Ireland can also help SMEs find suitable business partners using its business and technology cooperation database and it provides information on current tender opportunities and international networking.

The network doesn’t provide direct funding but it does identify sources where loans or grants for SMEs might be available.

In Ireland one of those sources is First-Step Microfinance, which provides unsecured loans of up to €25,000 over a three year period to companies that have a strong social dimension.

The not-for-profit organisation, set up in 1991 by successful Irish businesswoman Norma Smurfit and other like minded individuals, acts as a financial intermediary for the EU, distributing loans through the CIP.

In 2009 First-Step signed the first EU SME guarantee facility agreement under the CIP to help provide Irish SMEs with access to EU funds. Under the agreement the European Investment Fund, which was established to provide businesses with a range of financing solutions, is facilitating up to €3 million in loans to Irish micro companies through First-Step.

Irish SMEs involved in Research and Development (R&D) may be able to access funding through the 7th Framework Programme for Research and Technological Development (FP7).

Special efforts are being made by the EC to help smaller business take part in FP7 projects and applicants are asked to explain in their proposals how SMEs can get involved.

Fifteen per cent of the FP7 Cooperation Programme budget is now set aside for SME funding and around 20,000 small and medium sized business are expected to benefit from the programme before it concludes.

Irish SMEs based in rural areas may also be eligible for funding through the EU’s LEADER Programme – first launched in 1991 by then Commissioner for Agriculture, Ray MacSharry - which is part of the overall EU Rural Development Policy for 2007 to 2013.

The National Rural Network is a component of Ireland’s Rural Development Programme and it explains how to apply for LEADER funding and provides contact details for LEADER companies in Ireland.