European Union SME policies

Ulla Hudina

EU Finance Day for SMEs,Athens, 20th January 2009

Supporting SMEs

• SMEs – backbone of EU economy: important players in all value chains; 23 million SMEs (99 % of all firms) employ 85 million people (67% of total employment)

• EU policies coordinated, aligned with national efforts: subsidiarity principle

• Factors influencing SME growth: fiscal, social legislation, access to finance

• Not all SMEs are growth oriented

Putting SMEs first

• Principle: SMEs’ interest in legislation at the very early stages of policy-making

• SME-test: part of impact assessments - evaluating legislative proposals’ effects on SMEs

• Consultation of SME stakeholders: indispensable at the EU/national/regional level

• Commission SME Envoy: acts as an interface between SMEs and EU institutions

• Provisions in legislation: to avoid disproportionate burden on SMEs

EU SME initiatives

http///ec.europa.eu/enterprise/sme/index_el.htm sme-finance-day.eu european-sme-week.eu

Small Business Act (SBA)• 10 politically-binding principles

• Legislative initiatives More flexible state aid rules European private company statute Reduced VAT for local services Improved directive on payment times

• Policy initiatives: Commission, MS

• SBA and finance: Mezzanine finance (EIB, developing markets) Private placement regime (~ VC fundraising) Facilitating cross-border venture capital Investment readiness (good practices)

10 politically binding principles

1. Create an environment in which entrepreneurs and family businesses can thrive and entrepreneurship is rewarded

2. Ensure that honest entrepreneurs who have faced bankruptcy quickly get a second chance

3. Design rules with “Think Small First” principle4. Make public administrations responsive to

SMEs’ needs5. Facilitate SMEs’ participation in public

procurement and better use State Aid possibilities for SMEs

6. Facilitate SMEs’ access to finance and develop an environment supportive to timely payments in commercial transactions

7. Help SMEs to benefit more from the opportunities offered by the Single Market

8. Promote the upgrading of skills in SMEs and all forms of innovation

9. Enable SMEs to turn environmental challenges into opportunities

10. Encourage and support SMEs to benefit from the growth of markets

MS agreement – Council Conclusions (1 Dec 2008)

Regular progress assessment: Lisbon strategy reporting – National reform programmes

10 politically binding principles

EU and SME financing• Improving SME access to finance: fostering

entrepreneurship, competitiveness, innovation and growth ~ policies and programmes

• Reducing market gaps: which prevent SMEs from achieving their full potential

• Banks: most used source of finance for SMEs;

• Equity financing: equity gap, fragmented VC markets, limited in comparison to the US, more business angels are needed

• The current financial and economic crisis => important to secure SMEs’ access to finance

• CIP: No direct financing ~ through fin. intermediaries • FP7: Calls (for proposals, experts, services)

Financial instruments for SMEs

• Better funding opportunities 370 000 SMEs benefited in 1998-2006 (90% micro-

enterprises); on average, each SME that gets a guaranteed loan creates 1.2 jobs

CIP estimate: 475 000 SMEs to benefit in 2007-2013

• Better policies Good practices have been adopted in the Member States The single market is being used better New focus on eco-innovation and lead markets

• But: more improvements are needed

Competitiveness and Innovation Framework Programme, 2007-2013

CIP structure ~ 3 pillars

Entrepreneurship &Innovation

(EIP)

€ 2166 million incl. € 1130 m for finan.instr.

€ 430 m for eco-innovation

ICTPolicy(ICT)

€ 728 million

IntelligentEnergyEurope

(IEE)

€ 727 million

SMEs

Ecotechnologies

1st CIP pillar: EIP Objectives: • Access to finance for the start-up and growth of SMEs as

well as investment in innovation activities, including eco-innovation.

• SME cooperation environment, cross-border

• Innovation and eco-innovation

• Entrepreneurship and innovation culture

• Enterprise and innovation related reforms

Main actions:• CIP financial instruments (equity and loan guarantees)

• Enterprise Europe Network (business support services)

CIP - How does it work?

European Investment Fund (EIF)

Venture capital investment

in SMEs

Lending to SMEs

EIF selects its financial intermediaries based on competence. The criteria are public.

Guarantee fundsVenture capital investments

Other investors

EU funding

Venture capital

fund Bank

Guarantor

Competitiveness programme (CIP) financial instruments

Venture Capital in Europe

3273

3878

Source: EVCA

0

5 000

10 000

15 000

20 000

25 000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Expansion

Start-up

Seed

Venture Capital funding• Innovative, early-stage SMEs: potential for

high returns (despite risk), information asymmetries, reluctant investors, debt finance is not enough…

• Venture capital is essential• Fragmented VC markets in the EU: 27 MS

~ 27 environments, different market development, size, maturity…

• Commission is working on steps towards a more integrated VC market in the EU

• Current market conditions => increasing need of VC finance for SMEs

VC - Ongoing process• Expert group report (March 2007): mutual

recognition of funds and management companies from other MS

• Commission Communication (Dec 2007): MS to consider mutual recognition when adopting new/revising legislation, to overcome regulatory and tax obstacles; mutually acceptable levels of supervision and transparency

• Competitiveness Council (May& Dec 2008): invited MS to make progress towards the mutual recognition of national VC frameworks

• Ongoing cooperation with the MS • Commission to report in 2009

Enterprise Finance Index

http://ec.europa.eu/enterprise/entrepreneurship/financing/enterprise_finance_index/index_en.htm

Local source of information

www.enterprise-europe-network.ec.europa.eu

Thank you for your attention!

• European portal for SMEs (in Greek language):ec.europa.eu/enterprise/sme/index_el.htm

• Financing innovation and SMEs:ec.europa.eu/enterprise/entrepreneurship/financing/ec.europa.eu/enterprise/entrepreneurship/financing/publications.htm

• Enterprise Finance Index: ec.europa.eu/enterprise/entrepreneurship/financing/enterprise_finance_index/

• Guide on CIP, FP7 and Structural funds: ftp://ftp.cordis.europa.eu/pub/fp7/docs/practical-guide_en.pdf

• European SME week: european-sme-week.eu

• EU support programmes for SMEs (in Greek language): ec.europa.eu/enterprise/entrepreneurship/docs/financing/sp_2008_el.pdf

Weblinks:

entr-finance-sme@ec.europa.eu