A growing number of small businesses are in danger of inadvertently breaking the law due to the proliferation of regulations, many of which are contradictory, Tina Sommer, president of the European Small Business Alliance, told EURACTIV in an interview.
Tina Sommer is president of the European Small Business Alliance.
With large auto companies and banks being bailed out during the financial crisis, do you feel SMEs have been neglected, or will they benefit indirectly from support offered to big industries?
Anybody involved in the supply chain will hopefully indirectly benefit from the vast bailouts. However, late payments by large companies can undo some of the potential benefits for small companies. The bailouts should have the requirement of timely payment to suppliers.
During an OECD meeting in Turin in March, it also came to light that some companies in Spain use inter-company lending at extremely high interest to suppliers. This practice cannot take root and should be looked at.
Are you seeing any signs that banks are becoming more willing to lend to SMEs?
According to membership surveys, access to finance via the banks is still a major problem. To improve the situation, France and Belgium have introduced ‘credit mediators’ to help SMEs negotiate with the banks. This way. the government assists small businesses and keeps an eye on the behaviour of the banks at the same time. The French credit mediators have so far helped 8,000 companies and retained an estimated 50,000-60,000 jobs. Their website is visited by 1,000 companies every day.
There has been a lot of publicity surrounding loans and guarantees for SMEs from the European Investment Bank. Is this money reaching the companies who need it most?
This question is not easy to answer from our perspective. The funds are distributed through a small number of banks in each member state. In general, small business owners are reluctant to seek European funds, simply because their perception is that it will be too difficult for them in the first place. Although for instance we have given the contact details of UK banks to our membership, we have had no responses in terms of using the funds.
I believe that it must be the duty of the banks to advertise the funds to the small business community, to encourage them to come forward. For this to happen, the banks must have an incentive to promote the funds. There is a telling example in Greece, where only the state-owned banks promoted national funds for enterprises. Small-business owners are usually not aware what is on offer and that knowledge must be widely publicised. It is not enough to know there are funds available. It is important to show where to go and who to speak to.
You welcomed the proposed changes to the Late Payments Directive, but called on European institutions to lead by example. What difficulties have your members experienced in this regard?
We know from case studies that payments by the European institutions can take up to 12 months. This is not the norm, but for that particular business, it could spell the end. The problem with late payments is that it is very difficult to enforce payment, even if the law is on the side of the business. Fear of losing the customer or damaging the relationship is strong. The cost and time required for enforcement is often out of reach for a small company. Lastly, an invoice can always be disputed. Once a dispute is going on, payment terms become irrelevant.
Timely payment to small firms is a matter of goodwill. It should be the duty of any public body to ensure that invoices are paid on time. Bureaucratic delays are no excuse to endanger the survival of small businesses.
What element of the Small Business Act do you see as the most important to implement?
The ‘Think Small First’ principle is undoubtedly the most important element. Once this principle is enshrined in all actions, benefits for the small business community should follow on their own. Most of our membership deals on a local level. It is the local authorities that need to take on board this principle.
Member states have agreed to it, but need to feed that policy all the way down to the local level. Often, policies are decided on EU and national levels, but not communicated and enforced on the local level. Only when the principle is accepted at the local level will small firms feel a concrete difference to their working lives. Has enough effort been made to cut red tape? DG Enterprise has certainly made a lot of effort to cut red tape. I also believe that the High Level Group under Edmund Stoiber will make a difference.
However, what is still necessary is to cut red tape on all new legislation coming from any DG, be it employment, environment or others. Communication between the DGs also needs to improve to avoid duplication, overlap and contradictions. In addition, I believe that where substantial amendments are made to Commission proposals, they should at all times be accompanied by new impact assessments taking into consideration the amendments made to the original proposal. Furthermore, the ‘Think Small First’ principle needs to be acknowledged by the MEPs when changing proposals.
Lastly, implementation in member states can add an extra burden for small business. This should never happen, and national governments need to consider the impact on small business when deciding how to implement a directive.
What is your view on the European Commission’s decision to allow member states to exempt ‘micro-enterprises’ from accounting requirements?
This is a great help to micro-business. The vast majority in the EU are micro-businesses constituting 91.5% of all businesses in the EU. To run a micro-business, they do not need to have extensive accounts. In my own micro-business, the fee for the accountant services is my largest overhead cost. This saving alone will free up funds to invest back into the company.
Once a company grows and needs external finance from banks, then more detailed accounts can be produced as and when required. For the average micro-business, all they need is to know the financial state of their company and be able to fulfill their tax obligations.
Last but not least, member states must make use of this possibility. Deciding at the EU level to simplify is well and good, but if it is not implemented nationally, then small business will not benefit.
What other major challenges are your members facing?
No doubt, the financial crisis and the ensuing lack of demand are on the forefront for every small business. How to stay in business, retain existing jobs and survive. These are the current issues that put everything else in the background.
Expansion plans and ongoing expansions have been stopped in their tracks. Industries such as construction, services and retail are suffering where many of our members are active.
The key right now is to have the knowledge of how to survive, and this knowledge must be passed on to small firms so they will be around in the future.
If you had one wish and could change policy or legislation at EU level, what would it be?
This question is often asked, and there is no simple answer. In my experience, it is not a simple piece of legislation that causes problems, but the accumulation, sometimes even contraction and sheer amount of laws that a small firm has to follow.
We are coming to a stage where it is physically not possible for one business owner to ensure 100% that he or she is following every law that may be applicable to them. This is an unsustainable situation and will result in more and more companies inadvertently breaking the law.
Simplification, cutting regulation and cross-referencing is necessary to unravel the jungle that legislation has become.