Many European SMEs experience financing problems. They have less equity capital than their counterparts in the United States or Japan and they are more dependent than large firms on direct institutional finance (bank overdrafts, short and long-term loans), which is more expensive. The Commission noted that the situation could be improved easily by providing them with effective advice regarding both their management methods and their relations with their financial backers [COM/93/528]. It also suggested improving coordination and communication between the various European, national, regional and local programmes aimed at strengthening the financial position of SMEs. The risk capital action plan (RCAP), adopted by the Cardiff European Council in June 1998, encourages venture capital investments by the structural funds and other capital markets, particularly in the seed and start-up phases, which have traditionally been the weakest links of the financing cycle in Europe [COM/2001/605 and COM/2002/563]. Community Guidelines on State Aid to Promote Risk Capital Investments in Small and Medium-sized Enterprises set out the criteria the Commission applies in the compatibility assessment of the risk capital measures in accordance with Article 87 (3)(c) of the EC Treaty (Article 107 § 3.c TFEU) [see section 15.5.1].
The European Investment Bank (EIB) through its Global Loans and the European Investment Fund (EIF) are the financial institutions of the EU in support of SMEs [see section 7.3.3]. The EIF’s activity is centred upon two areas, venture capital and guarantees. EIF’s venture capital instruments consist of equity investments in venture capital funds and business incubators that support SMEs, particularly those that are early stage and technology-oriented. EIF’s guarantee instruments consist of providing guarantees to financial institutions that cover credits to SMEs. Both instruments implemented by the EIF for SMEs are complementary to the Global Loans provided by the European Investment Bank to financial intermediaries in support of SME financing. EIF’s instruments are implemented in the context of the multiannual programme for enterprise and entrepreneurship (2001-05) [see section 17.2].
Through the leverage effect of its venture capital and guarantee instruments, the European Investment Fund is able to contribute to the development of SMEs in the EU Member States and the candidate countries in the framework of the Lisbon strategy [see sections 13.3.2 and 17.1.3]. The EIF does not invest in SMEs directly, but instead always works through financial intermediaries. These intermediaries are given full delegation of activity. The EIF is not involved in individual investment/credit decisions. SMEs in search of finance are requested to contact an EIF intermediary in their country/region for information on eligibility criteria and application procedures. The EIF's engagement plays a catalytic role in the creation of investment funds, because it has the effect of attracting other investors and bestows to these funds the critical size allowing them to launch their investment activities.
SMEs are particularly interested in the possibility of European funding under the common regional policy. The Regulation on the European Regional Development Fund [Regulation 1080/2006] provides for a series of measures to support local development initiatives and the activities of SMEs [see sections 12.3.1 and 12.3.3]. It supports notably:
- productive investment which contributes to creating and safeguarding sustainable jobs, primarily through direct aid to investment primarily in small and medium-sized enterprises (SMEs);
- measures which support regional and local development, including support for and services to enterprises, in particular SMEs;
- aid to R&TD, notably in SMEs, and to technology transfer, improvement of links between SMEs, support for the provision of business and technology services to groups of SMEs and fostering of entrepreneurship and innovation funding for SMEs through financial engineering instruments;
- aid and services to SMEs to adopt and effectively use information and communication technologies (ICTs) or to exploit new ideas;
- aid to SMEs to promote sustainable production patterns through the introduction of cost-effective environmental management systems and the adoption and use of pollution-prevention technologies; and
- tourism, including promotion of natural assets as potential for the development of sustainable tourism.
The Business and Innovation Centres (BICs), set up by the Commission and public and private regional partners are designed to promote business creation and expansion by providing a comprehensive programme of services (training, finance, marketing, technology transfer, etc.) to SMEs which are developing innovative technology-based projects [Special report, see section 12.2.3].