Tag Archives: Finance

Financing SME Growth

Financing SME Growth

Outline of the Community (European Union) legislation about Financing SME Growth

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Employment and social policy > European Strategy for Growth > Growth and jobs

Financing SME Growth

Document or Iniciative

Communication from the Commission to the Council, the European Parliament, the European Economic and Social committee and the Committee of the Regions of 29 June 2006 – Implementing the Community Lisbon Programme: Financing SME Growth – Adding European Value [COM(2006) 349 final – Not published in the Official Journal].

Summary

The challenge of financing for small and medium-sized enterprises (SMEs)

Improving access to finance for SMEs, and more specifically initial investment and the ongoing injection of equity, is essential if an SME is to tap into its growth and innovation potential. However, a large number of SMEs in the EU face an equity gap. 2. When their initial funds have been exhausted, entrepreneurs have to obtain external finance to develop their project. Financing SMEs is, however, often considered too risky on account of the low rates of return, particularly during the seed phase. There is thus a serious lack of business angels and venture capital funds that are willing to invest in young innovative SMEs.

The inability to obtain early-stage investment prevents many SMEs reaching a size where they can attract expansion capital, thus stunting their growth.

SMEs, as sources of innovation and job creation, are the engines of European growth, and giving them the opportunity to start up, develop and achieve their potential makes a vital contribution to the Lisbon process.

Boosting SME financing

The European Commission suggests different measures to boost financing for SMEs.

Raising more venture capital investment

Encouraging venture capital investment involves the establishment of an internal market for venture capital. The aim is to overcome the fragmentation of the venture capital market and allow the various operators to invest across borders without incurring unfavourable tax treatment.

More attention should also be paid to the exit strategy (the point at which the venture capitalist can recover his capital by giving up his share). As initial public offerings of stock provide a natural exit route for venture capital investors, it is essential to make European growth stock markets more liquid and efficient.

The EU should also develop a growth and investment culture. Successful entrepreneurs should therefore be encouraged to invest in turn and become business angels.

Developing debt finance for SMEs

The EU should encourage traditional bank finance for innovation. A round table between banks and SMEs will be organised in order to improve the scope for long-term banking relationships, promote microfinance (loans of less than 25 000) and “mezzanine finance” (hybrids of loans and equity), and also evaluate the advantages of tax relief systems for young innovative companies.

Strengthening the EU contribution to SME financing

The EU needs to devote more resources to SME financing.

The main existing Community instruments in this respect are the Competitiveness and Innovation Framework Programme (CIP) (2007-2013), the JEREMIE (Joint European Resources for Micro to Medium Enterprises) initiative, under the EU’s regional policy and the Seventh Research Framework Programme (2007-2013).

The EU has also reviewed its regulations on State aid for risk capital funds, particularly to help innovative SMEs.

Introducing better governance at national level

It is also up to the Member States to ensure that the regulatory and fiscal environment favours SME access to debt finance and venture capital. Some Member States have already been successful in doing so. It is therefore essential to identify and spread good practices.

It is also recommended that the Member States draw up support schemes for entrepreneurs to make them aware of investor concerns and prepare them on how to present their projects better.

Background

This Communication forms part of the Lisbon strategy and its proposals complement the Communication on a modern policy for SMEs.

The European Commission will present a report on the progress made in SME financing in 2009 that will feed into the reporting on progress with the renewed Lisbon strategy.

Related Acts

Communication from the Commission to the Council, the European Parliament, the European Economic and Social committee and the Committee of the Regions of 10 November 2005, entitled “Implementing the community Lisbon programme – Modern SME policy for growth and employment” [COM (2005) 551 final – Not published in the Official Journal].

Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises [Official Journal L 124 of 20.05.2003].

 

Development of micro-credit

Development of micro-credit

Outline of the Community (European Union) legislation about Development of micro-credit

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Enterprise > Business environment

Development of micro-credit

Document or Iniciative

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions of 13 November 2007 – A European initiative for the development of micro-credit in support of growth and employment [COM(2007) 708 final – Not published in the Official Journal].

Summary

In Europe, micro-credit – i.e. loans of less than € 25 000 – is aimed at micro-enterprises (enterprises employing fewer than 10 people) and disadvantaged persons (unemployed or inactive people, those receiving social assistance, immigrants, etc.) who wish to go into self-employment but do not have access to traditional banking services.

Micro-credit can promote the transition from unemployment to self-employment and offers access to finance for persons whose projects the banks refuse to finance because of insufficient collateral. It can thus play a key role in implementing the Lisbon Strategy for Growth and Jobs.

Nevertheless, even if micro-credit has been on the increase for a number of years in the Member States of the European Union (EU), much remains to be done to enable this instrument to develop its full potential.

Therefore, the EU is proposing an initiative aimed at developing the market for micro-credit. The initiative comprises four strands:

  • improving the legal and institutional environment in the Member States;
  • further changing the climate in favour of entrepreneurship;
  • promoting the spread of best practices, particularly in relation to training;
  • providing additional financial capital for micro-credit institutions.

First strand: improving the legal and institutional environment in the Member States

The institutional framework in the Member States does not always allow micro-credit to develop in a positive way. Indeed, the specific nature of micro-credit is not generally taken into account in national or Community legislation. The Commission therefore encourages the Member States to take the measures needed to create a legal, institutional and business environment which is more conducive to the development of micro-credit. With this in mind, the Commission proposes that the Member States:

  • create an environment allowing the development of micro-finance institutions (MFIs) and covering all segments of the clientele. Given the number and diversity of potential clients, MFIs should have easy access to financial resources allowing them to develop micro-credit. MFIs are financed through grants and donations and, where appropriate, bank loans. They are certain to benefit from the creation of a suitable environment in which they are more visible;
  • help micro-credit to become sustainable by relaxing interest caps for micro-credit operations. In the Member States where they exist, interest rates should be fixed at a fairly high level in order that lending institutions can cover their costs, while regularly evaluating the social and economic impact in order not to jeopardise the security of borrowers;
  • reduce operating costs by applying favourable tax schemes. More favourable tax schemes (tax exemptions, tax reductions, grants) are important for the development of micro-credit;
  • adapt national regulation and supervision to the specificity of micro-finance. If they receive deposits, MFIs are subject to Community prudential regulation and are supervised accordingly. In order not to put a brake on the supply of micro-credit and the growth of MFIs not receiving deposits from clients, the new regulations and supervision must take account of their costs and the risks which MFIs pose.

Second strand: further changing the climate in favour of entrepreneurship

In order to encourage Europe’s shift towards an economy based on knowledge, services and new technologies, and to create a climate more conducive to entrepreneurship, the Commission proposes that the Member States:

  • improve the institutional framework for self-employment and micro-enterprises. Equal treatment for the self-employed and wage-earners is essential. Nevertheless, a programme of publicity and awareness-raising should be set up in order that self-employment and micro-enterprises are better recognised. To this end, legal, tax and administrative barriers should be lowered (e.g. exemption from social insurance charges, simplified registration procedures, improved access to more numerous and less expensive outlets);
  • increase the chances of success of new micro-enterprises through training, mentoring and business development services. The micro-enterprise environment is a complex one and demands a supply of business development services because those starting up in business do not always have all the competencies required in order to be successful. Training and mentoring are therefore needed to improve a start-up entrepreneur’s chances of success.

Third strand: promoting the spread of best practices

Promoting the spread of best practices for MFIs is a key element in the initiative to encourage micro-credit. The Commission therefore proposes to set up a new body to provide technical assistance and support the development of non-bank MFIs in the Member States. This new body would have the task of:

  • laying down a code of conduct for MFIs. Such a code would serve to increase confidence in MFIs and spread ethical and customer-friendly best practices among them. The quality of an MFI would thus be assessed on the basis of its social and financial performances and its business practices;
  • introducing a specific “micro-credit” label to create awareness among EU citizens. This label would enable the attention of investment funds dedicated to micro-credit to be focused more on MFIs which perform well, and improve citizens’ confidence in microfinance investment vehicles and steer new resources towards MFIs with the best social and financial performance;
  • providing information on this initiative and handling the publicity;
  • publishing brochures and organising conferences;
  • providing technical manuals, guides and software designed to help MFIs adopt best practices;
  • providing easier access to finance for MFIs by mobilising financial resources.

Fourth strand: providing additional financial capital for new non-bank MFIs

The Commission proposes to set up a support structure within the JEREMIE department of the EIF for the purpose of providing technical and financial support to promising non-bank MFIs. This micro-fund would have the aim of assisting MFIs to become self-sustaining and would help to increase the use of micro-credit in Europe and further develop this sector.

Context

This initiative seeks to promote the sustainable development of micro-credit in the EU and forms part of the Lisbon Strategy for Growth and Jobs, and of the policy of encouraging entrepreneurship and economic initiative, the policy of promoting “flexicurity” and the inclusion of disadvantaged persons, and the policy of developing human capital and renewing trust-based social links.

Related Acts

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 27 June 2007 – Towards Common Principles of Flexicurity: More and better jobs through flexibility and security [COM(2007) 359 final – Not published in the Official Journal].

from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions of 29 June 2006 – Implementing the Community Lisbon Programme: Financing SME Growth – Adding European Value [ final – Not published in the Official Journal].

Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) [Official Journal L 177 of 30.6.2006].

Directive 2006/49/ECof the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) [Official Journal L 177 of 30.6.2006].


European Charter for Small Enterprises

European Charter for Small Enterprises

Outline of the Community (European Union) legislation about European Charter for Small Enterprises

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Enterprise > Business environment

European Charter for Small Enterprises

Document or Iniciative

Annex III to the Conclusions of the Presidency of the Santa Maria Da Feira European Council of 19 and 20 June 2000.

Summary

Small enterprises are the driving force for innovation and job creation in Europe. Their small size makes them very sensitive to changes in the industry and environment in which they operate. This is why emphasis was placed on the need to facilitate the development of small enterprises by the Heads of State or Government and the European Commission at the European Council in Feira (Portugal) on 19 and 20 June 2000.

The Heads of State or Government and the European Commission acknowledge the dynamic capacity of small enterprises, particularly when it comes to providing new services, creating jobs and fostering social and regional development. They also stress the importance of entrepreneurship and of not penalising some of the failures. They also agree on the strength of values such as knowledge, commitment and flexibility in the new economy.

In order to stimulate entrepreneurship and improve the business environment for small enterprises, the Heads of State or Government and the European Commission have decided to work on ten routes of action, i.e.:

  • Education and training for entrepreneurship

Business principles will have to be taught from an early age if an ‘entrepreneurial spirit’ is to be encouraged; this applies particularly to secondary and university levels, in encouraging entrepreneurial initiatives by young people and developing training programmes for small enterprises.

  • Cheaper and faster start-up

Company start-ups will become cheaper and faster, particularly through the use of online registration.

  • Better legislation and regulation

There will be a reduction in the negative impact of national bankruptcy laws and new regulations on small enterprises. It will be made easier for small enterprises to use administrative documents and they will not have to enforce certain regulative obligations.

  • Availability of skills

Training institutions will impart skills adapted to the needs of small enterprises and provide lifelong training and consultancy services.

  • Improving online access

Public administrations will be urged to develop online services for their dealings with enterprises.

  • Getting more out of the single market

The Member States and the European Commission will complete the single market so that enterprises can derive the maximum benefit from it. At the same time, national and Community competition rules will have to be strictly applied.

  • Taxation and financial matters

Tax systems will need to make life easier for enterprises. Access to finance (risk capital, structural funds) will also need to be improved.

  • Strengthening the technological capacity of small enterprises

Efforts will be made to promote new technologies, implement the Community patent and facilitate access to research programmes which are more focused on commercial applications. Inter-firm cooperation and cooperation with higher education institutions and research centres will be encouraged.

  • Successful e-business models and top-class small business support

Enterprises will be encouraged to adopt best practices. Business support services will be developed.

  • Develop stronger, more effective representation of SMEs’ interests at Union and national level

Solutions aimed at representing small enterprises within the Member States and the European Union will be reviewed. National and Community policies will be better coordinated and evaluations will be carried out with a view to improving the performance of small enterprises. An annual report on the implementation of the Charter will appear in the spring of each year.

For the EU Member States, the implementation process was launched in the spring of 2000. The acceding and candidate countries were involved in the process from the spring of 2002. Following the adoption of the Charter by the acceding and candidate countries in Maribor (Slovenia) on 23 April 2002, the process was also launched in other areas. The Western Balkan countries (Albania, Bosnia-Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia, Serbia and Montenegro) adopted the Charter in Thessaloniki (Greece) in June 2003. In 2004, these countries embarked upon the first stage of the implementation process, with Moldova joining in that same year.

Related Acts

At the Euro-Mediterranean Conference of Ministers for Industry held in Caserta on 4 October 2004, Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the Palestinian National Authority, Syria and Tunisia approved the Euro-Mediterranean Charter for Enterprise.

The main objective of this Charter is to prepare for the creation of the Euromed free trade area, strengthen Euro-Mediterranean partnerships and create an environment favourable to businesses in the region. It is based largely on the model of the European Charter for Small Enterprises.