SMEs and the EU: The Small Business Act

Small and medium sized enterprises (SMEs) play a crucial role in the European framework. According to the European Commission, SMEs represent the 99% of all businesses within the EU and have immensely contributed to a series of economic and social aspects at a regional, national and international level. Employability, innovation, regional development, economies of scale, and the rise of local markets are some representative examples. The abbreviation SMEs is used by many international organizations, but for this analysis the defining criteria used by the EU are based on their staff headcount and an economical criterium: Enterprises qualify as SMEs when they employ up to 250 staff and when their annual turnover doesn’t exceed 50 million EUR or their annual balance sheet total doesn’t exceed 43 million EUR.

Today the European Commission focuses on providing a confident and pan-european response to the COVID-19 pandemic. In the sector of Internal Market, Industry and Entrepreneurship, remedy measures, boosting programmes and supporting initiatives are being set up. At the same time, the member states are adapting their policies to the new economic and trading environment, while they are receiving guidance and financial support to cope with the crisis. Specifically on SMEs, resources are reallocated in order to upgrade the existing mechanisms and liquidity measures are offered to businesses. For instance, the European Investment Fund offers long-term working capital loans, as well as “credit holidays” allowing delayed repayments of existing loans. Additionally, the COSME (Competitiveness of Enterprises and Small and Medium-Sized Enterprises) programme, which includes this ‘Loan Guarantee Facility’ is supported by additional funds which help with higher risk cover and a relatively faster approval process. Lastly, the ESCALAR (European Scale-up Action for Risk capital) programme supports venture capital and growth financing to help firms scale-up.

In 2008, a ground-breaking initiative in the area of SMEs was introduced. The European Commission released the Small Business Act (SBA) for Europe. This communiqué aims to simplify the framework on SMEs, to improve their regulatory environment and to support entrepreneurship. With its “Think small first” principle, the Act sets four main priorities “Promoting entrepreneurship”, “Less regulatory burden”, “Access to finance”, and “Access to markets and internationalization”. It introduces a series of tools that organize and monitor the member states’ progress on this policy, as well as contribute to the actual development of SMEs. Many of those tools are now proven to be long-lasting and effective, such as the SME test, the legislative provisions SMEs from gathering disproportionate burden, consulting mechanisms, SME panels and networks, etc. In 2011, the European Commission reviewed the SBA. After assessing the strengths and weaknesses of the Act and after finding that most initiatives and measures had been adopted, with most states meeting the targets but by taking different approaches, the EC proposed further new actions. In short, all the objectives and initiatives undertaken are built up around the following ten principles of the SBA:

  1. create an environment in which entrepreneurs and family businesses can thrive and entrepreneurship is rewarded;
  2. ensure that honest entrepreneurs who have faced bankruptcy quickly get a second chance;
  3. design rules according to the ‘think small first’ principle;
  4. make public administrations responsive to the needs of small and medium-sized businesses (SMEs);
  5. adapt public policy tools to SMEs’ needs: facilitate SMEs’ participation in public procurement and better use State aid possibilities for SMEs;
  6. facilitate SMEs’ access to finance and develop a legal and business environment supportive to timely payments in commercial transactions;
  7. help SMEs to benefit more from the opportunities offered by the EU’s single market;
  8. promote the upgrading of skills in SMEs and all forms of innovation;
  9. enable SMEs to turn environmental challenges into opportunities;
  10. encourage and support SMEs to benefit from the growth of markets.

To conclude, the Small Business Act is neither a stationary mechanism nor the only EU initiative on SMEs. It adjusts to its environment and the needs of the businesses, and it is open for discussion upon public consultation. The SBA is part of the Europe 2020 strategy and improves the business environment for SMEs. However, in order to fully understand the significance of the SMEs sector for the European Commission, it’s necessary to mention that six of the seven flagship initiatives of the Europe 2020 strategy aim to support SMEs on achieving sustainable growth. At the same time, the member states try to help SMEs grow by facilitating financing and giving flexibility to repayments of existing loans. Some might even claim that the Coronavirus crisis is an opportunity to strengthen cooperation and move on to decisive measures on SMEs policies. Others might say that this is just the beginning.

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