Commission report shows SMEs moving away from loan finance
A Commission staff working paper on 'Enterprises' access to finance,' published on 19 October concludes that Europe's small and medium sized enterprises (SMEs) are gradually moving from loan finance to instruments such as equity, debt-equity combinations, leasing and guaranteed loans and equity. The main reasons for this change are the withdrawal of some banks from low-margin SME lending and the development of financial markets allowing the expansion of alternative instruments. Access to finance is still a major barrier for enterprises, especially high-tech and high-risk start-ups, which want to grow and create more jobs. Roughly 20 per cent of small enterprises say that they have problems accessing finance, and the problem is worse for start-up companies. As over 99 per cent of European enterprises have less than 250 employees, and these companies are responsible for over two thirds of employment, SME financing is of vital importance in promoting an entrepreneurial economy and strengthening growth in the EU. Although loan finance is the most important source of external financing for most European enterprises, banks are increasingly moving away from microfinance - lending small amounts of money up to 25,000 euro - because of low profit margins. However, changes in the banking sector and possibilities created by the increasing sophistication of the financial markets point towards a diversification of enterprises' financing sources. This move towards a wider variety of finance options is further supported by an increasingly fluid market for financial instruments, the development of new financial products and the introduction of the euro. The Commission report nonetheless predicted that in spite of these changes, enterprise finance supply will continue to be dominated by bank lending for the next decade. The increasing range of alternative finance instruments can, however, be a significant factor in providing flexibility and choices that better reflect the needs of enterprises throughout their development. The Commission's paper, which follows a recent yearly update report on the 1998 'Risk capital action plan,' aims to review developments in bank lending as part of a longer-tern strategy to address enterprises' access to finance. Following up from the Lisbon council in March2000, the Stockholm European council emphasised the importance of national and EU-level frameworks in boosting entrepreneurial and economic dynamism. Improving access to finance for small businesses is also the key theme of a two-day conference on 'Financing SMEs - the European approach' which starts on 24 October in Louvain-la-Neuve, Belgium. The conference, organised by the Belgian presidency in cooperation with the European Commission, will gather stakeholders' views ahead of the 5 December Council of EU industry ministers. Belgian Prime Minister Guy Verhofstadt, Walloon economy, SME, research and technology minister Serge Kubla, Research Commissioner Philippe Busquin, Enterprise and Information Society Commissioner Erkki Liikanen and Competition Commissioner Mario Monti will take part in the event. The first day of the conference will be devoted to three workshops: 'relations between enterprises and banks,' 'financing innovation' and 'microcredit.' The second day of the event will present the conclusions of the discussions in two plenary sessions. Information on developments at the event will be available on CORDIS News.