Industry and Entrepreneurship
Access to Finance
The foundation for SME competitiveness
Credit is to companies as water is to human beings. With no adequate access to finance, businesses - especially small and medium enterprises (SMEs) - are bound to die. This is what is happening as a consequence of the eurozone financial crisis.
The ongoing credit crunch in many countries of the European Union makes investment, innovation and even the payment of basic bills impossible for thousands of companies. Many healthy businesses have disappeared only because of lack of credit. Many others are threatened.
This is unacceptable, not least because the 23 million EU SMEs represent the backbone of the European economy and are a major employer. The European Commission is committed to reestablish the correct functioning of the credit flow to SMEs.
Banks must be encouraged to provide finance to small and medium enterprises. In addition to the European Investment Bank’s supply of capital at low interest rates, the EU has fostered less strict capital requirements for bank loans to SMEs. This means that banks will have to reserve less regulatory capital when they lend to SMEs, encouraging them to lend more often.
The Commission is also considering other sources of funding for SMEs, and alternatives to the traditional banking channels. The Commission aims to establish a truly European market for venture capital which provides equity financing to small and start-up companies. If existing obstacles are removed, venture capital could provide a valuable source of funding for SMEs. We also promote SMEs listing and the possibility for smaller companies to issue bonds (as bigger firms do).
"Access to finance of SMEs remains difficult and is a factor in the continuation of our current economic downturn. Therefore we intend to enlarge our loan guarantees to financial intermediaries lending to SMEs. Each euro dedicated to our guarantees already had the power to stimulate - on average – 30 euros in bank loans. This is crucial to help Europe's jobs engine, our small enterprises, to run smoothly again."
The EU budget will also be increasingly used to fund SMEs. Horizon 2020, the EU’s framework programme for research and innovation, includes funding for credit guarantees to innovative SMEs and mid-caps. COSME, the programme aimed at increasing the competitiveness of SMEs, will make available 60% of its budget to support SME access to finance, i.e. approximately €1.4 billion between loan guarantees and support to venture capital. This will benefit almost 40 000 companies a year. The European Investment Bank will further increase the leverage effect with additional credit operations.