Regulaton & Policy
Funding Boost for European Small Businesses

Over the next six years SMEs (small and medium-sized businesses) in Europe will have access to finance worth €952 million, primarily from EU structural funds, according to an article in Customs Today.

In Cyprus alone, the fund aims to drive competitiveness and growth in SMEs, which make up 90 percent of the country’s economic activity. Cyprus’s Ministry of Energy and Trade has begun implementing a €160 million programme to boost SME competitiveness, according to SME Envoy and head of European Affairs Unit Constantinos Karagiorgis.

At a European Commission workshop on “EU Access to Finance Day” Karagiorgis said that the Cypriot economy is lacking in areas that promote growth. He added that local businesses faced major difficulties in accessing funding and funding tools. New businesses in particular faced challenges at a crucial point in their development when it may be difficult to prove their creditworthiness and sustainability.

Businesses in Cyprus are hit with the highest lending rates in the euro zone, which are more than 2 percent higher than the average lending rates in other EU states. Other difficulties that SMEs face include strict loan terms and banks’ demands for collateral at excessive levels.

In order to alleviate these challenges, Karagiorgis says that the Cypriot government should make securing sufficient funding for businesses – particularly SMEs – a priority. Cypriot SMEs have access to two main EU funding tools; COSME, which provides guarantees and business capital to SMEs, and InnovFin of the Horizon 2020 programme, which offers guarantees for research, growth and innovation.

They will also be able to benefit from the first funds from the new European Fund for Strategic Investments (EFSI) in the near future, following a decision by the European Investment Bank’s Board of Governors. The decision means that European SMEs should be able to access financing before the summer, according to a European Commission press release.

While the EFSI wont be ready for use until September, SMEs can access capital through the European Investment Fund – part of the EIB group – until the EFSI is in place. Infrastructure projects can also gain from similar pre-financing arrangements while the EFSI is established.

EU institutions are aiming to adopt the draft EFSI regulation by July, so that funds can start flowing into infrastructure investments in transport, digital, telecoms, as well as hospitals and schools, by the autumn.

Work on other parts of the Investment Plan is being fast-tracked to make sure they are ready by September. These include establishing a transparent project pipeline of European investment opportunities and a European Investment Advisory Hub.

The Commission plans to adopt a green paper on the Capital Markets Union and launch a public consultation of all stakeholders.  Its 2015 Work Programme has set an agenda to remove regulatory barriers to investment, and increase access to finance for SMEs. As we said in a previous article European SMEs Suffer From ‘Fragmented’ Finance Rules “small and medium-size enterprises in Europe suffer from barriers preventing them from shopping around for funding.” “They face a harsh investment climate due to fragmented rules for lenders and borrowers and a lack of “risk culture.”

So, great news for SMEs across Europe; entrepreneurialism and innovation have been held back through deficiency in funds, a situation which has hampered growth alongside high public debt in some countries. SMEs do play a large role in Europe’s economy and with more access to capital they have a better chance to grow and help speed up economic recovery.