Speech Tina Sommer on SME Finance 8 May 2012
My name is Tina Sommer and I am the President of the European Small Business Alliance, a pan-European association representing the interests of micro- and small businesses.
A common misconception is that micro businesses are a small part of the economy but let me take this opportunity to burst that bubble and remind everybody here today that 92% of all EU businesses are in fact micro businesses with less than 10 employees!
Keeping that in mind, I am supposed to talk about Pubic Private Partnerships today and how they can benefit small businesses but quite frankly, they don't. As is the case with European public procurement or any European funding project for that matter, it is still very much geared towards big business. Sure, efforts are gradually being made to include SMEs more and there is a lot of talk about how small businesses should have better access to these kinds of projects but the reality is that if SME participation is possible, it is often subject to subcontracting by larger businesses and consortia.
Another source of financing which is currently being hailed as the 'next best thing' for SMEs is Venture Capital. I don't know where this is coming from or why the European Commission is so bent on it but this too is not for ordinary small businesses! Venture capitalists are not interested in financing the small guys. With the exception of highly innovative companies and the odd small business with that one brilliant idea, there is no 'high risk, high return' in mainstream micro business.
The close observer will detect a pattern here…
Horizon 2020, Europe's big new funding project, again: totally focussed on 'highly innovative SMEs'! In its shadows there is COSME, the other new funding stream that is being developed, which, although targeting the 'normal', 'low-tech' SMEs, operates on a far smaller budget.
Folks, we are taking the wrong approach here!
Since the crisis hit Europe in 2008, the European Institutions have elected SMEs to be the ones to get our economy back on track. Phrases such as 'SMEs are the backbone of the European economy' have been echoing through the halls of the Parliament unremittingly and figures such as 99% of all EU businesses are SMEs are virtually included in the template for any article about the economy. Why are we then focussing our efforts almost exclusively financing highly innovative companies, which form such a small part of the small business spectrum?
The collapse of the banking system has given us a big scare and, as a logical consequence, has brought about stringent austerity measures. The most famous (or infamous) example being Basel III and the resulting Capital Rights Directive (CRDIV). These measures, although understandable, are causing the banks to put the squeeze on SMEs more than ever. For many micro and small businesses, getting a bank loan has become virtually impossible and unaffordable as banks are asking obscene personal guarantees, have tightened the credit ratings of SMEs, are making bank loans significantly more expensive, or stop lending to small businesses altogether.
So, with bank lending diminished and European money being channelled to very specific groups of SMEs, who is financing our small guys, those who were hit hardest by the crisis and those who (if you recall what we said earlier) are supposed to get our economy up and running again? That is the question we should be asking ourselves today.
I recently came across a typical example of this amongst our membership, where a window washer with two staff members wanted to buy a crane, which would enable him to wash the windows of high-rise buildings as well. He is convinced that this would make him more competitive and would enable him to hire one or two extra staff members. The machine would cost him 75.000 Euros. The bank will not lend him the money. This is not a high return investment, so venture capital is out of the question. The short version of the story is that he did not get his machine and feels majorly inhibited in his growth potential.
Unfortunately, the example I just gave is not an exception. Guys like this window washer form the large majority of all micro businesses, and here I would like to remind you again of that figure of 92% I mentioned in the beginning. Where is his financing?
Perhaps going back to a system of self-sustaining credit unions or cooperatives belong to the possibilities that should be considered? Another realistic and tangible option to increase lending for small businesses are loan guarantees, and I am happy that they are an important part of the COSME programme (which, in my onion should see a significant budget increase). We should however make absolutely sure that these guarantees do in fact lead to a lending increase and reach the intended beneficiaries, rather than providing the banks with an easy backup system. The same is true for micro-credits which are helpful if there is a system in place which checks that the intermediaries properly distribute the EIB and EIF funding streams.
I am also happy to share this panel with Chiara de Caro from the European Business Angel Network, which, in my opinion should be looked at more closely as an alternative means of SME financing.
We are so focussed on innovation to be able compete with third markets and are therefore spending lots of money on high tech and fast growing companies, but forgetting to take care of our base. Yes, we are part of a globalising market and we need to stay competitive. But if we do not take care of our 'backbone' which is made up of everyday non high-tech but profit making European businesses, we will never stand a chance.
So, my message for today would be: focus on the small guys. Channel European Funding towards the small businesses that need it the most in order to make them healthy and profitable again, employing more people and feeding back into the economy. If we do that, we will ensure a strong basis on which our highly innovative companies can build.
