In focus: Capital Markets Union for SMEs

The Commission views SMEs as the backbone of Europe’s economy, and as a result they feature prominently in the Action Plan. SMEs represent 99 per cent of all businesses in the EU and were responsible for the creation of around 85 per cent of new jobs and two-thirds of total private sector employment in the EU in the past five years.

The Action Plan places particular emphasis on new avenues for SME financing and improving existing sources, and suggests that significant benefits would be felt from deepening venture capital markets and reviving European securitisations. For example, the Commission notes that European SMEs currently receive five times less funding from capital markets than their American counterparts. More precisely, the Commission would like to see a situation where ’SMEs can raise financing as easily as large companies; costs of investing and access to investment products converge across the EU; obtaining finance through capital markets is increasingly straightforward; and seeking funding in another Member State is not impeded by unnecessary legal or supervisory barriers’.

The Action Plan reiterates the importance of bank finance for SMEs, proposing to assist the bank funding process by reviewing the securitisation regime in order to free up banks’ balance sheets (currently bank loans represent the largest source of SME funding, as shown by the EY report on the subject, discussed in our Viewpoint article). However there is also an acknowledgement by the Commission of the need to embrace and facilitate new and varied sources of SME funding such as crowd funding, business angels, lending and donor platforms and peer-to-peer lending. The focus is on filling the gaps in funding encountered by firms at critical moments in their expansion, as is often the case for SMEs which can find themselves with high growth potential but limited working capital. Transparency is also key, since an SME’s access to funding can be impeded by a lack of knowledge or information about funding options, whilst conversely SMEs need to make themselves more visible to prospective local and pan-European investors. The simple but critical goal here is to link growing businesses with prospective investors, and this is an area where the Commission’s proposals for a pan-European information system, linked with equivalent national systems, will come into play.

While the Commission’s agenda recognises numerous remedies to resolve issues faced by SMEs, in particular through new methods of financing, it remains to be seen to what extent such innovations will be subjected to regulation and risk assessment. New legal instruments can therefore be expected in areas not currently covered by the existing regime.