This article is part of our special report SME’s Access to Finance.
The financial and economic crisis is not yet over, with lingering uncertainties about growth, competition and profits. Therefore, stricter credit terms are an important topic for small and medium enterprises, argues Markus Stock.
Markus Stock heads the EU office of Wirtschaftskammern Österreichs, the Austrian Federal Economic Chamber.
"Small- and medium-sized enterprises are fundamental to Europe’s but also Austria’s economy. SMEs comprise 99% of Austrian businesses, more than 92% are even micro enterprises employing less than 10 people.
In Austria, 307,700 companies provide 1.8 million jobs. SMEs provide a job for 67% of the Austrian workforce.
Given the importance of SMEs for growth and jobs, the achievement of the ambitious Europe 2020 growth targets depend to a large extend on small- and medium-sized companies. Therefore, it is of utmost importance to ensure framework conditions allowing SMEs to grow and to create jobs.
At the moment, Austrian small- and medium-sized enterprises are confronted with important challenges. The European and national legal framework is quite complex. In a time of important public debt, reducing the existing tax and contribution ratio is not a priority for governments.
The financial and economic crisis is not over yet. Big uncertainties for enterprises about short-, medium- and long-term growth prospects remain. Competition, also from non-EU companies, is increasing.
Against this background, access to finance is crucial in order to allow SMEs to grow, employ, innovate and expand. Therefore, stricter credit terms are an important topic for SMEs.
The future capital and liquidity requirements for banks (Basel III) could lead to even less growth and negative effects on access to loan finance for Europe’s businesses. This would also negatively affect the Europe 2020 growth strategy.
Against this background the Austrian Federal Economic Chamber (WKÖ) welcomes the fact that the proposals for the Multiannual Financial Framework 2014–2002 provide for several instruments facilitating the access to finance for SMEs.
The financial instruments provided for in the Programme for Competitiveness of Enterprises and SME (COSME) target companies in different phases of their lifecycle: creation, expansion and business transfer. An Equity Facility for Growth shall provide venture capital to enterprises, in particular in their growth phase.
In addition, a Loan Guarantee Facility available for all types of SMEs shall cover loans up to €150,000. Also, the Commission's Horizon 2020 proposal foresees SME-related instruments comprising counselling and coaching elements as well as the use of financial instruments.
According to the proposals, the Enterprise Europe Network shall be tasked with implementing some of the services covered by this instrument. From an SME point of view, it is important that the instruments mentioned and dedicated for SMEs remain untouched during the negotiations on the Multiannual Financial Framework.
Furthermore, as of now, no clear definition of the services for SMEs has been agreed upon and the implementation structure as well as the complementarity of the separate support measures seems unclear.
Timely definition of the services as well as implementation is crucial since national and regional service structures need to plan their resources and possibly prepare for new tasks in Horizon 2020.
In addition, the proposals tabled by the European Commission, it might be worth considering the creation of a specific EU Guarantee Fund offering counter-guarantees to regional and national SME promotion and guarantee institutions which offer guarantees to SMEs.
The counter-guarantee would reduce the exposure at defaults for these institutions and therefore will generate an incentive to offer additional guarantees to SMEs. The fund could cover default losses resulting from the counter-guarantees. Assuming a counter-guarantee covering 25% of the national/regional guarantee (which would cover up to 80% of an SME loan) and a default rate of 10%, the fund would generate a leverage of 50.
That would mean a €1 billion Guarantee Fund could generate €50 billion new loans for SMEs. The EU Guarantee Fund could be established as an own programme in the next 2014-2020 EU budget and be allocated at least €5 billion.
Besides access to finance, a well functioning Single Market is important for Austrian SMEs. With an export quota amounting to nearly 60%, Austria and its SMEs are highly export oriented. About 75% of all Austrian ”exports” fall under the Single Market regime.
Thus, access to the Single Market free of discriminatory rules and practices for Austrian goods and services is crucial for SMEs. Besides the creation of a business friendly legal framework encouraging cross border activities, concrete support to SMEs is need.
Figures show that SMEs are willing to do what Europe needs: to create growth, jobs and wealth. In return, policy makers in the European Union should also be willing to provide SMEs with the framework conditions they need to fulfil this challenging task."