Economic subjects | Finance » SMEs and Access to Finance

Source: http://www.doksinet RECOMMENDATION PAPER “SMEs & Access to Finance” Thematic Pole 2 1 Source: http://www.doksinet TABLE OF CONTENTS Introduction . 4 Chapter 1 - SME’s and finance in the EU: the state of the art . 5 1.1 The approach 5 1.2 Perceptions about the future 7 1.3 Summary of the state of the art 9 Chapter 2 - Focus area: Finance and social entrepreneurship . 11 2.1 SMEs, Social Enterprises and Finance 11 2.2 Social Enterprises and new financial instruments 12 2.3 The future 15 2.31 Vision 15 2.32 Actions 16 2.3 SMEs and Social Enterprises: common challenges and common facilitators 17 Chapter 3 – The role of the EU . 17 3.1 EU’s institutional action until today 17 3.2 SMEs & Finance and the MFF 2014 2020 period 19 3.3 SMEs&Finance in the new transnational cooperation programmes 20 3.3 Summary of the role of the EU 25 Chapter 4. Insights from Thematic Capitalization Pole Members 27 4.1 VIBE PROJECT 27 The future role of

Transnational Cooperation Programmes on Finance . 27 4.2 I3E Project 28 Specific Focus Areas and main evidences . 28 The future role of Transnational Cooperation Programmes on Finance . 28 4.3 APP4INNO 29 The future role of Transnational Cooperation Programmes on Finance . 30 4.4 FOROPA 30 The future role of Transnational Cooperation Programmes on Finance . 30 4.5 IDWOOD 31 The future role of Transnational Cooperation Programmes on Finance . 31 4.6 EVLIA 32 The future role of Transnational Cooperation Programmes on Finance . 33 4.7 CLOUD 34 Specific Focus Areas and main evidences . 34 The future role of Transnational Cooperation Programmes on Finance . 34 Chapter 5. Insights from Pole Leaders’ Project Partners 35 2 Source: http://www.doksinet 5.1 PBN - Hungary 35 The future role of Transnational Cooperation Programmes on Finance . 35 5.2 RRA - Slovenia 36 The future role of Transnational Cooperation Programmes on Finance . 36 5.3 ARGE - Austria 36 The future role of

Transnational Cooperation Programmes on Finance . 37 5.4 CCIS 37 The future role of Transnational Cooperation Programmes on Finance . 37 Chapter 6 – Other Perspectives . 39 6.1 SEE Thematic Capitalization Pole 1 39 6.2 SEE Thematic Capitalization Pole 5 40 6.3 SEE Thematic Capitalization Pole 8 42 6.4 SEE Thematic Capitalization Pole 9 42 6.5 Insights from other Transnational Cooperation Programmes – Interreg IVc 43 6.51 Policy Recommendations for fostering entrepreneurship 43 6.52 Policy Recommendations for creating innovation systems 44 6.53 Policy Recommendations for boosting innovation capacity in SMEs 44 7. Conclusions 45 7.1 Recommendations for policy/ programme makers 45 7.2 Recommendations for the financial sector 50 7.3 Financing SMEs and Social Enterprises: final reflections and possible tools 50 7.4 Some ideas to inspire new thinking 52 Bibliography . 53 3 Source: http://www.doksinet Introduction SMEs in Europe With over 20 million SMEs in the EU

representing 99% of businesses, they are key for economic growth, innovation, employment and social integration. The European Commission is clearly focused in its aims to promote successful entrepreneurship and the South East Europe Programme is supporting this in the region by addressing deficits with improved supporting structures and processes for SMEs. Projects on the programme include topics around SME financing, IPR, clusters/business parks, social enterprises, technology platforms, ICT support. With a wide range of complementary SME support measures necessary for a developed innovative SME sector there exists capitalization and synergy possibilities between projects but also other initiatives and programmes that project provider organizations are involved with. The focus of the Thematic Pole Based on the main evidences of the SEE Annual Conference 2013 as well as the contributions that have been sent after it, the “Competitive SME Support Service” Thematic Pole has decided

to focus its work on the relationship between SMEs and Finance. Specifically, it has been decided to jointly work on a Recommendation Document targeted to a) Managing Authorities, b) Public policy makers, c) SMEs themselves. The document aims to be a light insight on how project leaders see the future evolution of the relationship between SMEs and the financial industry. It does not have the ambition of being persuasive with the financial industry or change the way SMEs refer to banks or investors but to provide insights about a) how transnational programmes may contribute to tackle specific issues and b) how new relationships SMEs and the financial sector may be created. The structure of the document Chapter 1 aims at providing a short overview of the state of the art of SME’s perceptions on finance and how external financing is (or not) happening in the EU. The main evidences for this first part have been extracted from the SMEs’ Access to Finance survey – Analytical Report,

November 2013. Chapter 2 provides a specific focus on “finance and social entrepreneurship”: this part has been developed as a specific added value provided by the Ease&See project coordinated by the Thematic Pole 2 Leader City of Venice. Chapter 3 provides insights on progress done at institutional level by the EU and how the new programming period will (or not) facilitate the implementation of initiatives opening new financial perspectives for SMEs’ owners or financial managers. Comments on some specific objectives of the most relevant Transnational Cooperation Programmes (relevant also for SEE Programme Area members) with 4 Source: http://www.doksinet the goal of explaining if and how those priorities may be relevant to improve SME’s capacity to increase their “financial appeal”. Chapters 4, 5 and 6 collect the evidences and proposals provided by four levels of stakeholders: Pole Leader project partners, Thematic Pole members, SEE Thematic Pole Leaders. The

chapter has been enriched also with contributions extracted from Capitalization Documents of Interreg IVc and Interreg Central Europe. Conclusions summarize Recommendations in order to provide an easy and quick to use roadmap for future action. Chapter 1 - SME’s and finance in the EU: the state of the art The Directorate General for Enterprise and Industry of the European Commission, in cooperation with the European Central Bank, requested a study on SME’s access to Finance in 2013. The survey was conducted by Ipsos MORI. All SME managers who participated in the survey were asked to evaluate a pre-supplied list of eight potential problems that their companies may currently be facing on a 10 point scale. Fifteen per cent of SMEs in the EU cited access to finance, which placed it second just after finding customers (22%). The analysis provided evidence about the fact that the approach to finance remains “traditional”, in other terms it is still focused on traditional channels

like bank overcrafts, leasing, trade credit and bank loans. 1.1 The approach A traditional approach to finance 5 Source: http://www.doksinet Only 5% of EU SMEs had used equity financing in the last six months. It was nearly twice as common among larger businesses (9% of those with 250+ employees) in the EU. What was the purpose? Also the purpose confirms a sort of traditional approach to finance. The analysis shows that the main reasons for financial resources from 2011 to 2013 was mainly related to purchase of land, buildings and equipment while “business development related activities” (like research, purchase of other businesses, promotion and training) are limited to 2-4%. SMEs’ perceptions on finance It is also interesting to highlight what the perception of SME’s managers in Europe was in 2013: there was a negative perception in terms of availability of external financing and the banks’ willingness to provide a loan was seen to have deteriorated over the last 6

months. Additionally those EU SMEs who could make a judgment for the mentioned analysis, they were four times as likely to judge that it had deteriorated (17%) rather than improved (4%), whilst 29% assessed it as unchanged. Last but not least, only 16% of EU SMEs were able to give an opinion about the willingness of investors to invest in equity in the past 6 months (in 2013), the great majority of SMEs considering this as not applicable to their firm. Changes in the availability of external financing In 2013 the majority opinion (43%) was that the availability of bank loans had not changed but the SMEs were still more likely to have seen availability deteriorate (15%) rather than improve (9%). A similar 6 Source: http://www.doksinet balance of opinion was also valid for availability of bank overdrafts, where 9% reported improvement and (15%) reported deterioration. Almost half of EU SMEs (47%) were not able to give an opinion on the availability of trade credit, stating this was

not applicable to their firm. From those who gave an opinion, a majority (37% overall) said that the availability of trade credit remained unchanged. One in ten SMEs (8%) reported that availability had deteriorated, slightly higher than those who reported an improvement (5%). For equity investment and debt securities, those who were not able to give an opinion due to this type of financing not being applicable to their firm stood at 78 per cent, and for debt securities this figure rose to 86 per cent. Looking at those who were able to give an opinion, the SMEs were evenly divided as to whether availability of these finance sources had improved or deteriorated over the past 6 months. Improvement and deterioration scores for both were very low, varying between 0% and 2%. The proportion of SMEs indicating that the availability of equity investments had remained unchanged has remained the same over the three waves of the survey, at 17% of SMEs surveyed. Debt securities also followed the

same trend in 2013 as in 2009 and 2011 with around one in ten SMEs reporting no change in availability in the past 6 months. Although just under half of EU SMEs (47%) were unable to give an opinion on the availability of other sources in 2013, opinions were fairly evenly divided as to whether the availability of these sources had improved (7%) or deteriorated (6%). 1.2 Perceptions about the future SME’s outlook for the future SMEs’ confidence in obtaining future financing from banks has remained static since 2011, with almost two thirds (63%). Similarly, the proportion not confident with talking to banks has remained broadly the same, declining one percentage point to 24%. The proportion of SME managers who did not think that talking to equity investors and venture capital firms for financing was applicable to their firm has risen to 63% - this is a statistically significant increase on 2011, which was itself a significant rise on 2009. Overall, one in seven (15%) of SME managers

felt confident in talking to equity investors about financing, and one in five or 19% were not confident. Both represent reductions from 2011, explained by the increase in SMEs who feel that it is not relevant to them. As with the previous survey years, bank loans are the most preferred type of external financing amongst SMEs that expect to grow in the next two to three years. In 2013, the proportion was two-thirds (67%), which is a small increase on 63% from 2011. The next most popular source of external financing was other types of loans, such as trade credit or a loan from a related company, shareholders, or public sources, which was favored by around one in eight (12%) of managers. Only 6% favored equity investments, down from 7% in 2011 7 Source: http://www.doksinet Desired financial needs in numbers The table below summarizes the desired financial needs of the interviewed SMEs which can be summarizes as follows: relatively small amounts (below 100.000,00 Euros) and loans as

privileged source Obstacles The proportion of SME managers who would prefer a bank or other loan and who believe that there are no obstacles to getting external funding stands at nearly four in ten (37%); a slight increase on 2011, but not statistically significant. The two largest obstacles to external funding identified by SME managers were insufficient collateral and interest rates being too high – both were selected by 20% of managers. The proportion claiming that interest rates are too high has remained the same since 2011, whilst the proportion claiming insufficient collateral has dropped two percentage points. The proportion of SME managers who see reduced control of their firm as a major impediment to acquiring external finance remains very low, at three per cent as it was in 2011. Similarly, the proportion claiming that financing is not available at all stands at 7%, the same level as in 2009 and 2011. Amongst the mangers of SMEs who would prefer equity investment or

mezzanine funding, the biggest obstacle was the interest rate being too high, identified by one in four (25%) managers questioned. “Other” concerns were the second most frequently cited (18%), followed by financing not being available at all (16%) and reduced control over the firm (12%). The level citing each type of concern has decreased since 2011. A new code for this wave of the survey was that “there are no obstacles”; around one quarter (24%) of SME managers felt that there were no obstacles to getting external financing. 8 Source: http://www.doksinet Important factors on future financing Last but not least, we would like to highlight which factors – according to SMEs – may contribute to facilitate access to financial resources. The first 2 most relevant measures rely on an active role of public actors while there are 2 factors which refer to a proactive role of service providers (also specialist ones). 1.3 Summary of the state of the art Approach to finance •

Traditional Perception of availability Desired amount • Negative • Relative low • Through traditional channels Main preceived obstacles: costs, lose management control, not available 9 Source: http://www.doksinet 10 Source: http://www.doksinet Chapter 2 - Focus area: Finance and social entrepreneurship Social enterprises confirm to be productive and competitive undertakings, thanks to the high level of personal motivation of their staff and the European Commission acknowledges that the social economy players are able to produce social innovation, inclusion and to find original and sustainable solutions for the needs of citizens. But there is also a general consensus about the fact that we can’t ask social enterprises to have a big impact if they can’t get the resources they need to grow bigger. The EASE&SEE project provided evidence about the fact that the financial industry, at least in some countries, is more and more looking at social enterprises as a

potential new market. If we look at what is happening in Italy or in some central and northern countries we may observe for instance ventures which are pro-actively investigating the phenomenon (to understand if there is a market potential), regional bodies launching tenders to review public financial mechanisms which may be used also by social enterprises, new approaches to micro-credit and its impact on social enterprises, private banks arranging road-shows to provide evidence about their interest in supporting development strategies of social enterprises and again private banks developing dedicated financial instruments as a means to support SE development. 2.1 SMEs, Social Enterprises and Finance The relationship between SMEs (Small Medium Enterprises), SEs (Social Enterprises) and finance has been subjected to various innovations during the nineties, able to join and support the evolution in progress in these areas. In terms of SMEs and SE, not to mention the differences between

the dynamics of the two sectors, the consolidation of a dual structure has taken place in Europe. On one side we find the creation of large companies and organizations (districts, consortia, networks, etc.) able to achieve significant forms of self-financing (fundraising, donations, privileged access to foundations, public procurements, etc.); on the other side we have witness the diffusion of co-operative structures at the local level to meet the growing demand for goods and services in the public and private sectors. This is due to the processes of privatization and the so-called modernization of the public sector, as well as and to the new quality demand for goods and services (eco-friendly products, local economies, direct producer-consumer relationship, etc.) by households and enterprises In terms of the credit institutions there has been a consolidation of the traditional relationship between cooperative banks and local credit and the rise of new initiatives in these areas and

sectors (ethical banks, microcredit, etc.) In this process we register also initiatives taken by large banks creating specialized services for the ‘third sector’ and the local economies. Both processes outlined here bore the imprint: 1) a negative one, to be the by-product of privatization of public welfare, and therefore to be influenced by political dynamics and lobbied that this entails and the neo-liberal ideology of competitiveness and the price; 2) a positive one, to be stimulating factors to 11 Source: http://www.doksinet the renewal of the SMEs and SEs role and function, and that is the awareness of the need for modernization of management and financial factors that support their activities. At European and national level this is reflected in the conflict between two trends: a) The approach prevailing in the European Commission and the European Central Bank for the integration of the financial systems according to the logic of international finance, more or less

regulated by itself (profitability, technocratic control of the central banking system, etc.); b) the position advocated by the big organizations of credit unions (cooperative credit) (especially in Italy, Germany, Netherlands, France, Austria), which seek to protect the specificity, autonomy and strength of action of this sector. At the beginning of the millennium the financial flows toward SMEs /SEs were as follows: 1. public procurement; 2. lending from the banking system 3. self-financing 4. Volunteering (defined undeclared work in the SMEs) The 2008 crisis dries up these streams: - Public procurement shrinks because of the cuts imposed on public spending (3% etc.) The rhetoric to speedy up the payments of government’s debt to SMEs and IS is blurred by the fact that in addition to not paying the public sector is generally reducing its demand. - The big banks suspended lending to enterprises, particularly SMEs / SEs, encouraged by the ECB, prompting them to channel funds

received towards itself, or big financial operations and investments. - The territorial link between cooperative, ethical credit system and SMEs / SEs remain active during the crisis in financing these sectors. But it is precisely for the reason to put an end to such ‘distorsion’ of a consistent part of the general saving that ECBs initiative for a European Union Bank was conceived. It is used as a tool to delegitimize the cooperative banking sector (see the results of the first audit report on European banks) and to return this large area of savers and savings in the area of finance altogether. Applied across the banking sector - large and small companies, investment banks and commercial banks, profit, non-profit and for-profit - to the criteria of efficiency of the big banks and speculative finance means to get their hands on the mass of the credit cooperative sector, bringing it back into the flow of speculative finance indistinct. 2.2 Social Enterprises and new financial

instruments Social Venture Capital 12 Source: http://www.doksinet The social venture capital addresses a varied market, from traditional target VC sectors – like ICT (information communication technology) and more recently bio-technologies and alternative energies – strictly speaking the third sector. The VC’s aim is to grant risk capital (or equity) to new or expanding enterprises, in high development-potential sectors. Moreover, a VC fund plays the role of “active” investor in the financed business, giving the new enterprise specialist know-how, which is essential to strengthen the management activity and as a consequence its financial returns (for a traditional VC) and its financial and social returns (for a social VC). Venture Philanthropy (VP) consists in the application of VC’s policies to the non-profit sector, not in order to gain returns from invested capital, but to obtain the best result in terms of entrepreneurial activity and economic and social

development. The VP invests in purely non-profit organizations or non-profit organizations which manage trade activities with a reinvestment of profit in their own business to which profit logics are applied in order to maximize their social value on cost-performance conditions. In real terms, the VP imports into the third sector methods and instruments of enterprise support and measurement of performances typical of VC, including, amongst other things: due diligence, benchmarking, monitoring of objectives, preparation of a business plan and in general greater attention for accountability. The VP translates into an actual partnership between the investor, the philanthropic organization which manages the fund and the financed enterprise. Social Impact Bond A SIB, in its original version, is a contract between the Public Administration and investors where the former raises funds to achieve a social objective and undertakes to repay the obligation undertaken within set times. A public

authority issues a bond to raise capitals which will be used to finance a specific project which can produce savings for the authority and a better social outcome. In exchange the authority undertakes to pay part of any savings gained to investors. Repayment is proportional to results Social investors, when subscribing a SIB, achieve both a social and a financial return which will be the greater the better the result of the financed programme. Social enterprises, finally, thanks to the resources they raised, receive payment for the services they supply while being made able to pursue their mission. The main focus shall be social value creation, additional objectives such as the improvement of the efficiency and effectiveness of the public action are functional to achieving the former. Social return on investment Social return on investment (SROI) is a principles-based method for measuring extra-financial value (i.e, environmental and social value not currently reflected in conventional

financial accounts) relative to resources invested. It can be used by any entity to evaluate impact on stakeholders, identify ways to improve performance, and enhance the performance of investments. 13 Source: http://www.doksinet The SROI method as it has been standardized by the SROI Network provides a consistent quantitative approach to understanding and managing the impacts of a project, business, organisation, fund or policy. It accounts for stakeholders views of impact, and puts financial proxy values on all those impacts identified by stakeholders which do not typically have market values. The aim is to include the values of people that are often excluded from markets in the same terms as used in markets, that is money, in order to give people a voice in resource allocation decisions. Some SROI users employ a version of the method that does not require that all impacts be assigned a financial proxy. Instead the "numerator" includes monetized, quantitative but not

monetized, qualitative, and narrative types of information about value. Social Impact Investment Impact investing is one form of socially responsible investing and serves as a guide for various investment strategies. According to the definition of the Global Impact Investing Network (GIIN): "Impact investments are investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below-market to above-market rates, depending upon the circumstances." Impact investing tends to have roots in either social issues or environmental issues, and has been contrasted with microfinance. Impact investing occurs across asset classes; for example, private equity/venture capital, debt, and fixed income. Impact investors are primarily distinguished by their intention to address

social and environmental challenges through their deployment of capital. Impact investing is distinguished from crowdfunding sites, such as Indiegogo or Kickstarter, because impact investments are typically debt or equity investments (with longer-than-traditional venture capital payment times) and an "exit strategy" (traditionally an initial public offering (IPO) or buyout in the forprofit startup sector) may be non-existent. Although some social enterprises are nonprofits, impact investing typically involves for-profit, social- or environmental-mission-driven businesses. Impact investing is distinguished from microfinance primarily by deal size, and secondarily by the investment for equity rather than debt. Hybrid organization The organization of the commercial and social sectors has long been governed by an assumption of independence between commercial revenue and social value creation. For more than a century, activities necessary to create commercial revenue, it was

assumed, could not substantially affect or improve on social welfare, and vice versa. Thus most organizations that sought to pursue social value and commercial revenue simultaneously pursued differentiated strategies. 14 Source: http://www.doksinet For instance, venture philanthropy programs were viewed as a nonbusiness activity and were conducted at arm’s length from corporations’ core activities. On the other hand, many nonprofit organizations attempted to sell products or services, creating revenue streams to reduce dependence on philanthropic and public funders. Yet earned income programs, often unrelated to the core activities of nonprofits, did not always live up to expectations. Hybrid organizations combine the social logic of a non-profit with the commercial logic of a for-profit business, but are still very difficult to finance. 2.3 The future 2.31 Vision The historical experience of co-operative production and credit movements, shows that they are an important means

of containment and innovation in the economy. They are the essential tools, especially in a modern economy, to create the substrate on which finance and credit for SMEs and SEs can exist and develop. An anti-crisis model that draws strength and effectiveness through the relationship with the territory and the ability to extend credit to households and small and medium-sized enterprises. A real alternative to the system of investment banks increasingly involved in speculative operations. The European dimension of the financial cooperative system has been known since the nineteenth century. The existing system has its strengths in Germany, the Netherlands, France, Austria and Italy Its viability depends on the ability to have followed a number of paths due to the diversity of the historical reasons for their foundation, and having to provide answers to the needs and opportunities of various territories. In the EU the system of credit cooperatives, on the eve of the crisis (2007),

consisted of 4,000 local and regional banks, 62,000 branches and 49 million members. The market shares amounted to 60% in France, 50% in Austria, 40% in Germany and the Netherlands, 39% in Italy and 10%% in Spain and Portugal. (2007 data). In Italy, recent data provided by Giulio Sapelli, indicate just under 12.5 million customers, distributed among more than 9 thousand branches of 72 banks, which are governed mainly due to the nearly 1.4 million members and work of 82 thousand employees. The contribution of cooperative institutions is 460 billion Euros of assets and loans that reach € 400 billion, or about 25% of the national total. The key to this lies in the sustainability of their traditional and historical commitment to the territory in which they are rooted, in support for small and medium-sized enterprises and households. The data of the years of the crisis show that it is the banking sector that has not speculated, which maintains a base of shareholders and customers for

their peoples and local businesses, as demonstrated by the 200 billion euro in new loans to small businesses, provided a total of 2008 onwards, so keeping a level of commitment similar to that available to most of the companies smaller in the years preceding the crisis. The cooperative credit system confirms its cyclical behavior. And thereby going opposite the behavior of the banks that have significantly reduced their efforts in these areas. 15 Source: http://www.doksinet The cooperative credit system, SMEs and SEs can try to negotiate niche areas, restricted by definition, fitting, however, in the flow determined by big business and its logic of financing. This can be attempted in the forms of representation that exist today that do not distinguish these areas from the rest of the economy (in Italy, Confindustria, ABI, and so on). This would be the case if the SMEs / SEs embrace the ideology of growth (‘big is beautiful’), which is equivalent to plan their disappearance is at

the local level and national level. Alternatively, the cooperative credit system, SMEs and SEs agree on a pact of solidarity, but not for survival but for the revival of an economy model - national and European - based on the regionalization of production systems and markets to manage and revive its areas of activity extended to new areas of culture, tourism, services for the citizens, and so on. This is not a project for the third sector or for SMEs, but to rebuild the foundations of the European project on the object of cooperation, solidarity, and social and territorial cohesion. 2.32 Actions The list of intervention typologies required for this specific enterprises may be summarized as follows: 1) Promotional initiatives are needed and an appropriate informative system still has to be put in place at least in the Programme Area in order to allow social enterprises to be “educated” and properly informed about finance and its role in contributing to enterprise development and

strategies; 2) Financial Governance mechanisms: the financial industry should be involved when it goes to prepare, design and implement financial mechanisms and tools at local, regional and National level which are targeted to social enterprises; 3) Financial instruments and incentives should be rationalized at all levels (fund of funds). Concrete financial options to be activated: 1) Innovation should be primarily supported (prices, prototypes, co-innovation practices); 2) Capitalization should be strengthened; 3) Financing risk capital through venture capitalists and business angels; 4) Corporate restructuring should be incentivized (where relevant) in order not to lose value; Support services should be strengthened or implemented (even better if they had previous financial experiences) to support social enterprise financial officers or to support financial programs. Additional possible proposals for developing social enterprises (in the broad sense) in relation to the investments

(impact funds): 16 Source: http://www.doksinet - To encourage pension funds, insurance companies, institutional investors, banks, banking foundations, and philanthropic foundations to invest in Social Impact Products - Develop new innovative tools such as Social Impact Bond and Development Impact Bond - Create a specific fund for social enterprise through the use of structural funds and community resources - Introduce tax incentives for financial products with social impact - Spread the proper tools to measure the impact of social enterprises among the social enterprises and also among the institutions, without that lead to change or induce changes in social enterprises themselves. 2.3 SMEs and Social Enterprises: common challenges and common facilitators Social Enterprises have to face the same challenges of “traditional” SMEs and additionally suffer from a still low level of consideration from the financial industry and low “capitalization” which prevents their

attractiveness to financial investors In both cases the public sector and service providers can play a relevant role in increasing the financial appeal of these business actors Chapter 3 – The role of the EU 3.1 EU’s institutional action until today Europes economic success depends largely on the growth of its 23 million Small and Medium sized Enterprises (SMEs) achieving their potential. SMEs contribute more than half of the total value added in the non-financial business economy and provided 80% of all new jobs in Europe in the past five years. 17 Source: http://www.doksinet SMEs often face significant difficulties in obtaining the financing they need in order to grow and innovate1. One of the key priorities set out in Europe 2020, the EUs growth strategy for the coming decade, as well as in the Commissions Single Market Act2 and the Small Business Act3 is to facilitate access to finance for SMEs. The Annual Growth Survey has underlined the crucial role of a healthy

financial system to support growth and set out priorities for action in the short-term perspective. In this context the reform programme for financial services, implemented as a response to the financial crisis, can bring about regulatory benefits to SMEs. In addition, the Commission is proposing to release new targeted funding at EU level to address the key market failures that limit the growth of SMEs. On 7 December 2011 the Commission has adopted an Action Plan outlining the various policies that it is pursuing to make access to finance easier for European SMEs. Proposed regulatory and other measures aimed at maintaining the flow of credit to SMEs and to improving their access to capital markets, by increasing the visibility to investors of SME markets and SME shares, and by reducing the regulatory and administrative burden. The reform programme for financial services, implemented as a response to the financial crisis, included a number of proposals that will positively stimulate

the financial sectors contribution to funding the real economy and will bring about regulatory benefits to SMEs. Specifically the document proposed to - Improve the regulatory framework for venture capital - Work on State aid rules relevant for SME access to finance - Improve SME access to capital markets through some regulatory changes - Review the impact of bank capital requirements on SMEs - Accelerate the implementation of the Late Payments Directive - Introduce an innovative regime for European Social Entrepreneurship Funds Here follows a short overview of the most relevant measures. Regulation on European Venture Capital Funds On 17/04/2013 the EU Parliament and the Council adopted a regulation which sets out a new “European Venture Capital Fund” label and includes new measures to allow venture capitalists to market their funds across the EU and grow while using a single set of rules 1 COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, TO THE EUROPEAN PARLIAMENT,

TO THE COMMITTEE OF THE REGIONS, AND TO THE EUROPEAN AND SOCIAL COMMITTEE. An action plan to improve access to finance for SMEs {SEC(2011) 1527 final} 2 COM 2011 206 3 COM (2011) 78 18 Source: http://www.doksinet This Regulation lays down uniform requirements and conditions for managers of collective investment undertakings that wish to use the designation ‘EuVECA’ in relation to the marketing of qualifying venture capital funds in the Union, thereby contributing to the smooth functioning of the internal market. It also lays down uniform rules for the marketing of qualifying venture capital funds to eligible investors across the Union, for the portfolio composition of qualifying venture capital funds, for the eligible investment instruments and techniques to be used by qualifying venture capital funds as well as for the organization, conduct and transparency of managers that market qualifying venture capital funds across the Union. European long term investment funds On 26

June 2013, the European Commission proposed a new investment fund framework designed for investors who want to put money into companies and projects for the long term. These private European Long-Term Investment Funds (ELTIFs) would only invest in businesses that need money to be committed to them for long periods of time The document lays down uniform rules on the authorization, investment policies and operating conditions of EU alternative investment funds (AIFs) that are marketed in the Union as European longterm investment funds (ELTIFs). Additionally the EU has been working on regulatory benefits for SMEs in the fields of - Markets in financial instruments (MiFID) - Transparency Directive - Capital Ratios Directive (CRD IV) - Crowdfunding - Social entrepreneurship funds (see below) 3.2 SMEs & Finance and the MFF 2014 2020 period Finding appropriate ways to finance the real economy and especially SMEs is a priority for the European Union4. Under this perspective,

“finance” is both a means as well as a working-topic within the new multiannual financial framework. If we look at finance as a “means”, the 2014-2020 programming period foresees an increased use of FI for all Thematic Objectives (Transnational Cooperation) and across all sectors (Thematic Funds). A number of FIs are foreseen to provide financing to SMEs with the objective of moving away from grant Financial instruments means Union measures of financial support provided on a complementary basis from the budget to address one or more specific policy objectives of the Union. Such instruments may take the form of equity or quasi-equity investments, loans or guarantees, or other risk-sharing instruments, and may, where appropriate, be combined with grants 4 19 Source: http://www.doksinet mechanisms towards FIs, namely revolving funds focused on productive investment that also allows for greater participation of the private sector. Furthermore, there is a wide interest in

ensuring the strong commitment of the financial intermediaries in taking the role of bodies implementing FIs, in order to increase efficiency in the delivery of funds and leverage the amount of funds made available through private participation. Indeed, SMEs play an important role in the new programming period 2014-2020. The largest and the most important program is Horizon 2020, in which the European Commission has provided the appropriate tools for the support of small and medium-sized enterprises. This program has a special measure (SME Instrument) to encourage small and medium size enterprises to participate on it and to enhance their innovative potential, making funding mechanisms simpler and more responsive to their needs. The EC has also developed financial instruments in the two main programs (COSME and Horizon 2020) with the aim of improving the access to credit for businesses and in particular for SMEs, which provide a way of facilitating credit and equity instruments risk.

The list of available options for SMEs to directly join EU funded initiatives which may contribute to their investment and development plans include: - Life 2014 2020 - Creative Europe - Erasmus Plus - COSME - Horizon Additionally, other programmes sector specific programs may be considered like - AAL - IMI - Eurotransbio 3.3 SMEs&Finance in the new transnational cooperation programmes Adriatic Ionian Evidences of the SWOT and Needs Analysis The “challenges and needs” analysis included in the draft programming document evidence under the “smart growth” goals the difficulties of businesses to access finance as one of the threats related to increase the “competitiveness of SMEs” and, under the “inclusive growth” goal, a Poor disposition of SMEs to invest in vocational and dual training under the “skills and education” item. 20 Source: http://www.doksinet Among the needs which have been associated to smart and inclusive growth goals, quite

many are referred (directly or indirectly) to the necessity of identifying ways to foster investments at different levels (R&D, technology, business development). Potential Priority Axis to be used Priority Axis 1 - Innovative region, and its specific objective 1.1: “Support the development of innovation networks and clusters among regions, academia and enterprises in the AIO region” could probably be the ideal arena to work on the different roles of “finance” and the mechanisms to be implemented in order to make real investments happen. The expected results listed in the Programme indeed may require an in-depth analysis of a) how, when and through which mechanisms finance may play a role in increase new innovation approaches in the fields of EcoInnovation; Public Procurement for Innovation; Creative Industry; Service Industry and Social Innovation, Procurement and Social Innovation; b) the necessity of improving the framework conditions also to facilitate access to finance

c) the role of financial stakeholders in the fields of research, innovation and utilisation d) the necessity of involving financial stakeholders to fully take advantage of emerging market opportunities in the Programme Area Please note that SMEs are a target group for the Programme, not direct beneficiaries. Danube Transnational Programme Challenges The Programme document provides evidence (among many other factors) of the necessity of diminishing hindering factors in the diffusion of knowledge and innovations (ability to implement knowledge-based and technology intense activities). In the field of research and innovation, important disparities, both in terms of its resources allocated but also in its structures and human resources available are evidenced. The uneven distribution of research and innovation capital is mainly due to the different framework conditions the sector is facing throughout the region. The wide range of financial allocations and policies governing the research

sector are determining the institutional capacities of the actors involved, leading to different levels of performance. These disparities may be addressed by an increased level of interconnectivity among the actors active in the sector, creating the conditions to better use the potential existing in the less developed regions. Potential Priority Axis to be used Priority axis 1: Innovative and socially responsible Danube region (working title) and its specific objective 1: “Improve framework conditions and a balanced access to knowledge Improve the institutional and infrastructural framework conditions and policy instruments for research & innovation and ensure a 21 Source: http://www.doksinet broader access to knowledge for the development of new technologies and the social dimension of innovation (SP1)” could probably be the ideal arena to work on the different roles of “finance” in this Programme Area. As the program document states, the innovative capacity and

sustainable structures for research and innovation are determined by the interplay of factors which enable knowledge to be converted into new products, processes and organisational forms which in turn enhance economic development and growth. One of the factors to be taken into consideration is also the financial sector and its organizations. Through Transnational cooperation the program aims at evaluating the feasibility of transnational tools and services also in the field of a) better access to innovation finance, subsidies and incentives for R&D, access to venture capital (access to finance), b) support for innovative public procurement (which could be seen as an indirect financial instrument) as driver for innovative products and services Among the listed actions to be supported the programme mentions: a) Improve the access to finance through the establishment of a Danube Region Research and Innovation fund; b) support for innovative public procurement: Improved public

procurement practices can help foster market uptake of innovative products and services. At the same time these practices will raise the quality of public services in markets where the public sector is a significant purchaser. It is therefore important to mobilise public authorities to act as "launching customers" by promoting the use of innovation-friendly procurement practices Please note that SMEs are a target group for the Programme, not direct beneficiaries. Balkan Mediterranean Programme Evidences of the SWOT and Needs Analysis Under the Competitiveness axis, the SWOT analysis evidences among the weaknesses a) strong economic regional disparities & areas with low competitiveness’ performance as well as b) difficulties to access credit. While among the threats there is evidence of Access to credit hampered by the crisis (contracting financial markets). Potential Priority Axis to be used Priority Axis 1: Entrepreneurship& Innovation and its Specific Objective

1.1 “Promote entrepreneurship and business creation on the basis on new ideas, innovation and new types of business models” are suggested as the main playground even though the action level will be mainly focused on SME’s capacity building. 22 Source: http://www.doksinet The Balkan-Mediterranean region is characterized by strong entrepreneurial spirit and diverse economic activity. SMEs and microenterprises in particular, represent a substantial part of all economic sectors in participating countries and though they form more than 60% share of the total value added they suffer from recession and low growth levels, structural markets’ weaknesses with respect to unemployment and limited access to financing. The enhancement of SMEs’ capacity is crucial and can be achieved through a comprehensive set of actions linking overall business’ support to education and training. The exploitation of new ideas, innovation and new types of business models enables the differentiation

of innovation patterns according to the potentials and needs of a specific territory. The Programme suggests to leverage on a transnational approach in a) supporting new business models, ideas and innovations and at the same time enhancing the SMEs’ capacity of SMEs by implementing also actions related to education and training in order to enable SMEs acquire the necessary skills/tools to boost their competitiveness; b) linking business’ support and businesses ’ training helps to create new business models. Promoting entrepreneurship through clusters and cluster policies, by facilitating the economic exploitation of new ideas will help to overcome strong economic regional disparities prevailing in the region. Among the types of actions which are considered to be privileged, the program document lists a) Joint actions to assist fast access to various financial and development instruments supporting SMEs; b) Enhancement and support of business information and centres, including

virtual ones, to promote innovative and new business models’ applications; c) joint organisation of promotional activities in identified target markets; Please note that SMEs are a target group for the Programme, not direct beneficiaries. Interreg Europe Evidences of the Needs and Challenges analysis The programme area consists of 286 regions10. The situation and prospects of these regions in light of these challenges are very diverse. The 8th progress report on cohesion also underlines this picture and identifies the need for cohesion programmes to support growth-enhancing and job-creating investments, with an emphasis on a few important areas such as innovation and SMEs, energy efficiency and a low-carbon economy, employment and education. Potential Priority Axis to be used Priority Axis 2: competitiveness of SMEs and its Specific Objective 2.1: Improve the implementation of regional development policies and programmes, in particular programmes for Investment for Growth and Jobs

and, where relevant, ETC programmes, supporting SMEs in all stages of their life cycle to 23 Source: http://www.doksinet develop and achieve growth and engage in innovation” are suggested as the main playground where the main actors involved will be regional policy and programming bodies . The main change sought under this axis is an improved implementation of regional policies and programmes, in particular programmes for Growth and Jobs and ETC, that support the creation, development and growth of small and medium sized enterprises. The potential for enterprises to create new or use existing market opportunities begins with the presence of entrepreneurial skills (including, according to us, financial management skills). Regional policies therefore need to actively support entrepreneurship development and capacity building as a building block for business creation and growth. It is equally crucial that regional authorities and business support actors respond adequately to the key

challenges that obstruct businesses on their path to growth, such as access to finance (e.g through facilities for start-up capital or guarantees) and knowledge and to international markets. Certain priority target groups of entrepreneurship policies (e.g young people, migrants or female entrepreneurs) may also require specific support. A transparent and dependable business climate is crucial for all economic actors. Regional procedures can be made more business-friendly, e.g related to public procurement or e-invoicing The document describes that the programme will support exchange of experiences and sharing of practices between actors of regional relevance with the aim to prepare the integration of the lessons learnt in regional policies and actions for entrepreneurship and SME support and the programme will facilitate policy learning and capitalisation by making relevant practices and results from interregional cooperation and other experiences widely available and usable for

regional actors involved in innovation support in G&J, ETC and other programmes. Please note that SMEs are a target group for the Programme, not direct beneficiaries. Central Europe 2020 Evidences of needs analysis Under the Thematic objective “Strengthening research, technological development and innovation”, the needs analysis highlighted that a) there is an uneven distribution of R&D activities across Central Europe, b) There is a high potential for mobilizing synergies between business and research and investments in product and process innovations but linkages are not sufficiently established, c) the lack of innovative skills and knowledge is a major shortcoming in regions lagging behind, d) Potentials of transnational and regional clusters remain unused, e) A lack of cooperation and common innovation strategies hinders the use of synergies. According to us all these needs indirectly send us back to the necessity of introducing the role of financial institutions in

contributing to mind these gaps. Potential Priority Axis to be used Priority Axis 1 – “Cooperating on innovation to make CENTRAL EUROPE more competitive” 24 Source: http://www.doksinet Under this priority, the CENTRAL EUROPE Programme addresses key socio-economic challenges and needs within central Europe that are related to smart growth as defined in the Europe 2020 Strategy. It aims at more effective investment in research, innovation and education. The programme will help strengthening potentials of technology - oriented areas that are destinations of foreign investments and capital flows, notably through better linking actors of innovation systems. This will enhance the transfer of research and development (R&D) results and the set-up of cooperative initiatives and clusters. It will also address regional disparities in knowledge and education such as brain drain, and strengthen capacities and competences for entrepreneurship and social innovation, also responding to

challenges related to demographic change. Specific Objective 1.1: To improve sustainable linkages among actors of the innovation systems for strengthening regional innovation capacity in central Europe This will be achieved through transnational and internationalized regional networks and clusters fostering technology transfer and the development and implementation of new services supporting innovation in businesses. Increased cooperation between actors of the innovation systems, especially between business and research, will improve access to research results for enterprises, notably SMEs, thus stimulating further investment in innovation. Furthermore, the link between research and public administration will be strengthened (e.g by setting up specific mechanisms and promoting public procurement of innovation) which could positively contribute to both economic and social innovation transfer 3.3 Summary of the role of the EU Are recognized as yey actor in the EU growth strategy Ask

and need support to increase access to finance Financial support as a means to develop Finance as part of the thematic strategy Thematic Programmes Cooperation Programmes 25 Source: http://www.doksinet The list of programs and the abstracts of the priority axis show that the relationship between Finance and SMEs in Europe is based on a double approach. On one side the EU is extending the array of financial instruments available to SMEs and which can be used to make their development processes more and more European. On the other side, the EU continues to work on innovation, competitiveness and entrepreneurship thus opening the ground to “finance” as at least a strategic topic which has to be addressed by proposals. 26 Source: http://www.doksinet Chapter 4. Insights from Thematic Capitalization Pole Members 4.1 VIBE PROJECT Lead Partner: Slovenian Public Agency for Entrepreneurship, Innovation, Development, Investment and Tourism SMEs and Finance: main perceived

constraints Generally speaking SMEs have different financing opportunities: Structural Funds, ERDEF, state aid. In reality, possibility for access of different funds is difficult: high rate of co-financement is required and if you are a start-up you are not able to get credit from banks or from other sources. This happens not for textile sector but for all type of activities. SMEs from textile have to cope with problems of low financing of innovation (at national level), lack of business-angels or investors, difficult access or no access to bank funds (depending on company’s assets). Pre-seed or seed funding for start-ups are also very difficult to find. The VIBE project addressed the challenge of developing the innovation and entrepreneurship system across the SEE by enabling private investment into innovative entrepreneurial companies in partnership with smart public initiatives and investment. VIBE offered a transnational integrated approach, mobilizing a critical mass of the

regional investment, innovation agencies and providing efficient support to investors, policy makers and agencies with the aim to encourage high-growth of entrepreneurs across the Regions. Start-ups were the main beneficiaries of the VIBE project. The future role of Transnational Cooperation Programmes on Finance Priorities and objectives Access to finance is consistently rated as the biggest challenge for high-growth innovative companies. Fostering both access to venture capital, corporate investment, business angel activity and linking in with international investors as well as increasing the growth potential of innovative companies and their investor-readiness are crucial to the development of a knowledge-based economy in the SEE region Transnational cooperation programmes could be a possibility for innovative SMEs, but they need most of all support at national level to go internationally (level advice3, coaching, incubation services). Business angel networks and brokerage events

are really needed by SMES. The Innovation Union is a very nice objective for all EU countries, but not easy to reach by every country. Innovation should have more funding actors and instruments in order to boost the innovation and blooming innovative companies, with high growth potential (“gazelles”) and start-ups. Project typologies Is difficult to answer. Looking from an SMES point of view, a small dedicated program will be useful 27 Source: http://www.doksinet Involvement and contribution of the financial sector Financial actors should directly be involved as partners in transnational cooperation projects. They can participate in different phases of the project implementation and benefit from the results in respect of IPR. Additionally they should play a more important role in carrying out policies in industrial sector, in strategies for development, in higher education, in business coaching and mentoring. 4.2 I3E Project Lead Partner: ISI - Industrial Systems Institute /

Research Centre ATHENA Specific Focus Areas and main evidences SMEs and Finance: main perceived constraints Financing is scarce for SMEs mainly due to the economic crisis. Banks are lending less and less money, which has created a very difficult situation for all companies, but mainly SMEs. In the sector of microelectronics, ICT and embedded systems, SMEs face further problems as they have to finance innovation as well. This appears to be quite difficult to be done via traditional financing instruments The anticipated sources of financing, i.e business angels or venture capitals, for such types of companies are quite few and do not provide sufficient funding for innovative SMEs in Europe like for instance in USA Achievements The main focus of the I3E project was twofold: the elaboration of a Strategic Research Agenda in the thematic areas of Embedded Systems and Industrial Informatics out of a wide consensus building activity in the area of South East Europe involving stakeholders from

academia / research, policy making and enterprises, including SMEs, and the elaboration of a methodological guide addressing the process for the transformation of research to innovation. The latter comprised a part for the financing of innovation at the seed, start-up, early-growth and expansion stages. In this context, it provided information on the different forms of financing innovation, also applicable to innovative SMEs. The I3E methodology guide on innovation comprises a chapter on financing innovation detailing the different stages that an innovative SME has to go through and the difficulties that it faces when in comes to financing its activities at the different stages before its viability is ascertained. In this context the methodology guide helps develop a good understanding of the financing needs of an innovative enterprise during the seed, the start-up, the early-growth and the expansion stages. Different financing instruments are explained comprising feasibility grants,

microcredit, business angels and venture capital, while successful experiences in innovation financing are presented and highlighted. The future role of Transnational Cooperation Programmes on Finance Priorities and objectives Transnational cooperation programmes could surely address certain issues associated with financing of innovative SMEs. By helping build or reinforcing the innovation support framework in an area, they can 28 Source: http://www.doksinet influence the provision of much needed services to innovative SMEs, like incubation, legal / advisory / mentoring / coaching support services, capacity building services related to innovation etc. Furthermore, they may be helpful for the creation of local funds or business angel networks that can provide direct financing to SMEs. An important priority for all Europe is enhancing innovation in SMEs. This is in turn associated among other things with the financing of innovation, which needs special instruments and approaches.

Helping develop such approaches for increasing financing of innovation in the seed, start-up and early-growth phases would be beneficial for Europe and could be an objective for the new period. Specific actions associated with this could be supporting projects for the provision of microcredit, or formulation of business angel networking Project typologies I think that addressing the field of finance requires the selection of a small number of large strategic projects acting as mini-programmes, i.e funding sub projects through them In this context, I believe that this would be the most suitable project typology to follow. Involvement and contribution of the financial sector Directly involving the private financing sector in transnational cooperation projects would be beneficial and could create added value in projects. The role of such participation would be to enable the set up and enforcement of SME financing mechanisms. In this context, their participation should be limited to large

strategic projects and with reference to specific carefully designed actions. Yet, the usual bureaucracy of transnational cooperation programmes may inhibit the active participation of the financing industry in projects. The role of the Public Sector Innovating SMEs by default lack at the early stages of their development the capacity to get a bank loan as they cannot present prove of evidence of their success. In this context, there is a need to develop support mechanisms and financing mechanisms to provide them with the needed resources at the seed, start-up and early-growth stages of their development. The public sector should address this issue, possibly by providing tools for supporting innovation financing, so that the absence of the private sector in many countries of SEE is efficiently dealt with. Furthermore, and with reference to general SME financing and taking into account also the economic crisis and the pressure that it has imposed on banks, alternative tools of SME

financing should be sought as well. 4.3 APP4INNO Lead Partner: Veneto Agricoltura SMEs and Finance: main perceived constraints The project did not focus directly on finance but nevertheless an internal investigation on the topic has been done with a view to contribute to the capitalization work. 29 Source: http://www.doksinet During the last years, access to medium term credit has been difficult for farmers: the amount of loans granted per year nearly halved and access to favorable credit decreased by one sixth. This was mainly caused by the uncertainty of return on investments, less availability of favorable credit and difficulty in demonstrating farm capital solvency. The future role of Transnational Cooperation Programmes on Finance Priorities and objectives No, because access to credit is often regulated at national level. Project typologies Mainly be on experience and knowledge sharing. Lack of evidence of practices limits adoption of solutions in financial management.

Involvement and contribution of the financial sector Financial institutions may be involved on demand” when financial issues can manifestly hinder the project accomplishment. Financial actors can provide useful consultancy in order to study new financial tools, tailor made for the project’s partners and objectives. 4.4 FOROPA Lead Partner: Holzcluster Steiermark GmbH SMEs and Finance: main perceived constraints Financing instruments for SMEs are not covered by FOROPA. However, for the implementation of pilot cases relevant stakeholders (forest-based SMEs, scientific experts) are subcontracted in the project countries. With regard to the Austrian bio-energy sector a real lack of finance cannot be observed. Meaningful and well prepared projects in this sector usually do not face a shortage in finance. For SEE countries it is to say, that basically investors are available – the barriers that exist are either investors with too little local knowledge/unrealistic expectations or

administrative barriers/unstable political situation in the countries. The future role of Transnational Cooperation Programmes on Finance Priorities and objectives In general, we would not expect transnational cooperation programmes to be a suitable instrument to overcome the issues outlined above. Naturally, at project level opportunities exist to establish and bring forward investments/business partnerships, although experience says that many of such success stories depend on the persons involved and often happen ad hoc. 30 Source: http://www.doksinet Project typologies No recommendations as I think the ETC programme and the derived projects are hardly suitable to tackle such issues. Involvement and contribution of the financial sector We don’t think that a direct involvement in projects is part of their business. In addition, the financial industry probably lacks of staff to be able to contribute to such projects as a partner. However, it makes sense to involve representatives

of the financial industry as external experts to provide their experience to projects. As a cluster organization, we have financial institutions as cluster partners and from time to time we organize courses for SMEs lectured by bank representatives, tax advisers, insurances, lawyers etc. Typical topics of those courses are “how to apply for a bank credits”, “practical guidance on how to deal with banks on various topics”, “What to consider in terms of company insurances”, “Guidance on how to hand over the company ownership to a successor”, “How to evaluate the value of a company”, etc. Often those courses are in cooperation with other associations like the Chamber of Commerce. 4.5 IDWOOD Lead Partner: Slovenian Forestry Institute SMEs and Finance: main perceived constraints SMEs facing financial draught nowadays find it difficult to access support services helping to innovate in technological and non technological aspects. Fund schemes supporting access to

“development services” usually have limited resources and timelines. It would be interesting to gather experience on funding schemes that with some form of participation from SMEs can be long-lasting and outside usual bank circuits: some kind of revolving schemes with participation of SMEs. The future role of Transnational Cooperation Programmes on Finance Priorities and objectives Transnational programmes should provide some resources especially to develop activities towards Startup phases and R&D (pilot projects) and human capital development of SMEs. Developing Framework conditions, the core business of TC is essential but launching some more structured operational phase thanks to the newly created framework conditions would be great opportunity and would grant commitment from SMEs Start up: it depends on the project objectives; some time in some sectors it would be ok. R&D: This is the real thing. Support Framework conditions relates mostly to that but after two or more

years of work you have no resources to operationalize and grant real access to services. There should be small financial schemes to develop relations R&D Institutes - SMEs that seldom have their research facilities. Schemes should be regulated by standard procedures and control 31 Source: http://www.doksinet Project typologies The focus could be on elaborating some standard SME financial schemes to support the operativization of activities: a sort of sustainability launch The access to this co-financing of some activities by SMEs would be also proof of the targeted approach of the project Financing R&D access for SMEs, Banks are usually not competent in this fields as they are simple sellers of financial instruments elaborated in the main office, There should be some specific parallel activities for developing banks knowledge how to serve SMEs in specific sectors relevant for the single territories, technical and technology needs and market chances. Involvement and

contribution of the financial sector Not as partners but subcontractors. If this possibility would exist, there should be the possibility, for example, to select in an open competition the financial institutions working within the project. Financial Institutions must never control project activities. 4.6 EVLIA Lead Partner: Camera di Commercio di Venezia SMEs and Finance: main perceived constraints Considering the activities carried out in our projects, the most important issues for SMEs are linked to the find possibilities to access finance more easily to get financing for their innovation processes. In particular, we discover how Intangible Assets are important for SMEs when trying to access financing, together with the value of a correct and complete valuation of Intellectual Property Rights for the business of enterprises. Starting from the difficulties that new and innovative SMEs experienced when attracting external financing to grow, EVLIA project aims at developing a

standardized methodology and tool for the valorization of Intangible Assets (IA) owned by an enterprise or company, and to test it with financial players, in particular with banks, in order to ease the access to finance. Within EVLIA, the most challenging issue was to gather banks and local stakeholders to establish a discussion table (“Local Working Group”), on the importance of Intangible Assets for SMEs and how they could be relevant for micro, small and medium enterprises when trying to access finance. In particular, during the second meeting, which was dedicated to the analysis of the methodology developed by EVLIA for the valorization of IA, it was found that banks already have their own IA evaluation methods and they could not change them because of national regulations and the control system provided by the Bank of Italy. Therefore, it was clear that the valuable inputs coming from the EVLIA methodology could be taken into account when rating an enterprise from the

qualitative point of view, because intangible resources 32 Source: http://www.doksinet could improve the general assessment of a SME/company, helping banks to rate it in a positive way, when it comes to provide financial supports. The future role of Transnational Cooperation Programmes on Finance Priorities and objectives YES, a transnational approach could be important to help enterprises solving their problems and helping them to make their business growth, getting some valuable inputs from the experience of SMEs from other countries. It is crucial to involve the financial community when speaking about financing SMEs; methodologies and tools developed in this sense must be harmonized and agreed with the financial operators The approach to Finance Sector shall start from the “real” state of the art of this sector to avoid misunderstanding and requests that are out of order (because of the law, the internal financial rules, etc) SMEs should understand that financial operators to

be involved must go beyond Banks. Venture&Seed Capital, Crowdfunding and Business Angels should be promoted and considered too The development of methodologies and tools to support SMEs with finance must be always supported by concrete cases (success cases) Policies, practices and instruments must be harmonized. Transfering knowledge and proposals to improve access to credit by SMEs must always consider the EU&National legal framework, the rules adopted by the financial community and the concrete needs of the SMEs. According to the experience of our project, it would be important to concentrate on the practical problems of SMEs in their access to finance and help them providing some useful services to help them concretely, valorizing the resources they have and, maybe, they are not able to valorize properly. Project typologies We would recommend to focus on the difficulties and opportunities for SMEs to get funds and financing, with peculiar reference to their Intellectual

Property Right and Intangible Assets, because these are still rather uncommon and unknown issues. Involvement and contribution of the financial sector It would be very useful if they would be involved in transnational projects as external observers or as “Project Partners”, as well, because they would bring added value to some issues of the project and could give SMEs important suggestions and inputs to solve their difficulties in access to finance. Indeed they could also be important actors from this point of view that could support and help SMEs as “consultants”. 33 Source: http://www.doksinet 4.7 CLOUD Lead Partner: CAN Emilia Romagna Specific Focus Areas and main evidences SMEs and Finance: main perceived constraints Since CNA EMILIA ROMAGNA represents micro and small companies belonging to different sectors, we can assume that the main cross-sectorial financial issue is the lack of a capital adequacy of micro enterprises (<10 employees). That makes it hard to access

to credit, to invest in medium/long term, to design a business plan, to find available innovative finance instruments The future role of Transnational Cooperation Programmes on Finance Priorities and objectives Based on our experience, as an Association of SMEs, we think it’s very important to take into account the concrete effect (follow up) of the actions planned on businesses and citizens. The overall assessment of the project that the financial institution (for ex. bank) is required to do on the basis of the business plan can be favored by the presence of a transnational partnership and by a 2 to 5 years plan of investments. Project typologies We could recommend to require economic and financial assessment of the company through benchmarking tools, to complete the advice of the credit institutions and to obtain an evaluation of the overall performance of the company compared to the average of the target market. Involvement and contribution of the financial sector Based on our

experience, it would be important to involve as partners organizations belonging to the financial industry, in order to create a kind of virtuous circle, able to share needs of the territory and businesses, investment strategies, trends, economic scenarios. To enhance credit allocation, it’s more and more needed a corporate culture that aims not only at human capital growing, but also at a constant dialogue enterprise/credit institution. It is important that credit institutions start paths consulting lasting and become an ongoing support. 34 Source: http://www.doksinet Chapter 5. Insights from Pole Leaders’ Project Partners 5.1 PBN - Hungary SMEs and Finance: main perceived constraints First of all the SMEs don’t know about their possibilities related to finance. Their capabilities to elaborate their business plan are weak and they need support to be sustainable. Knowledge of customer-based profitability, or by stock-keeping-units, costs of financing stocks, etc. are missing

The future role of Transnational Cooperation Programmes on Finance Priorities and objectives The transnational cooperation programmes with the participation of the intermediary organizations should focus on how to support them based on the international experiences and show them the global trends, providing a benchmarking analysis and complex audit services in order to orient their future developments. More tangible results are expected related to the SMEs e.g higher number of services and business contacts among the SMEs, raising export value, etc. It is derived from more precisely, concretely defined objectives. Also more predictable call waves – maybe less amount, but higher frequency Significantly less administration is also vital. Finally, the language barrier, in terms of high sophistication of formulating the application call makes the task difficult for an average SME to understand. Project typologies We recommend to execute the exchange of experiences on innovative financial

instruments in the programme area as well as preparatory actions for pilot implementations. Besides concrete financial instruments it is also important to provide soft-support services (eg. training, mentoring, business planning) for the SME, which helps the access to finance. Involvement and contribution of the financial sector Based on our previous experiences this kind of organization hasn’t got any motivation/capacity to take part directly in transnational cooperation projects namely they endeavor to make profit directly and not to elaborate methods for many months/years. But the business support organization can be involved the relevant one or more financial institutions and work with them to develop better constructs for SMEs. There are wide ranges of services available on the market. The challenge is not to provide a new service, rather than how to intermediate the business players and the service providers. And before that, to raise the demand and interest for such services

among the SMEs – by mentoring, educating. (I think that this kind of other roles works already but the efficiency is questionable namely a financial actor offers only own services and couldn’t provide unprejudiced demand for SMEs. ) 35 Source: http://www.doksinet 5.2 RRA - Slovenia SMEs and Finance: main perceived constraints Main issues that SMEs in our territory are facing in terms of “finance” are based on the fact that banks in Slovenia have not changed the general credit conditions they apply to SMEs. Also, the availability of information on credit and strength of legal rights is not adequate. Access to finance remains a key problem as loans to non-finance sectors continue to decrease. The future role of Transnational Cooperation Programmes on Finance Priorities and objectives Transnational cooperation programmes could be an instrument for tackling these issues, since they can assure suitable measures and provide a wider range of financing possibilities, in terms of EU

projects with this topics, where local authorities and respective entities are project partners and are responsible for activities in this regard. Such programmes are also a great opportunity to transfer best practices from other EU countries. The main objectives to be reached by 2020 could be to create synergies between the promotion of Slovenia as a tourist and business destination, promotion of the Slovenian economy and support for foreign investment and innovation. Shared knowledge and capacity would undoubtedly benefit the business community. Another important priority is to make the national innovation support system more transparent and easier to use for domestic SMEs. Project typologies All projects, which would promote the implementation of the Small Business Act in Slovenia. Involvement and contribution of the financial sector We believe that organizations belonging to the financial industry should not be directly involved as partners in transnational cooperation projects,

but rather play the role of Associated partners. In this way they are actively involved in the project implementation but are not directly connected to its budget; within a certain project they could be awarded with a fund that would have to be used for offering nointerest loans, for example. 5.3 ARGE - Austria SMEs and Finance: main perceived constraints The financing for the development of new technologies, new products or services is one of the main issues of SMEs, as their own capital is mostly quite low, the SMEs need bank loans for their innovation process. But due to BASEL II the access to bank loans got quite restricted Many SMEs experience real problems in financing their business. SMEs are at the moment not aware of alternative financing ways (e.g joint ventures, business angels, crowdlending etc) 36 Source: http://www.doksinet The future role of Transnational Cooperation Programmes on Finance Priorities and objectives Transnational cooperation programmes should focus on

alternative resources for financing. Priorities should include: a) promotion of better access to alternative financial resources for SMEs; b) strengthen the cooperation of SMEs with financial actors in an alternative way than just the financing (business development) Project typologies Establish Innovative partnerships not based on merely financial principles. Involvement and contribution of the financial sector We don’t think there is always need to have the financial industry included; they should be better involved on an “on demand” basis as the traditional financial industry does not promote the alternative ways of financing. Financial actors should definitely envisage any other role that just the provision of financial resources. As financial actors are embedded into a big network of other SME’s or other financial actors they should at least take over the role of connecting businesses. Consultation apart from financial resources, eg in the field of business plan

development, alternative sources for financing (crowdfunding or –investing) would also be advantageous. By the offer of other services than just the financing, financial actors could get a more active role in the whole business world (mainly as a partner) and possibly a better image 5.4 CCIS SMEs and Finance: main perceived constraints Daily experience has shown that, regarding financing, social enteprises are facing difficulties in finding resourses for start up acitivities but also are having difficulties with sustainabilities of their businesses. Most of them are using grants and donations as main source of financing acitivites without any sustainable financial intrument that would support start-ups or development of entrepreneurial activity. The future role of Transnational Cooperation Programmes on Finance Priorities and objectives Transnational cooperation programmes could contribute to tackling these issues through transfer of know how regarding development of financial

instruments, strategic and legal framework. The main objectives should be to provide support to the development of entrepreneurship, specific financial tools for SMEs and increase educational skills Project typologies Projects promoting and supporting private/public partnerships 37 Source: http://www.doksinet Involvement and contribution of the financial sector They should be directly involved as partners since financial sector is of great importance to development of any sector. Making them a direct partner would provide direct benefit to the importance sector involved and companies from the selected sector. Yes, consulting and training role. They can provide know-how on how to apply for financial means and generally consulations on how to act with finacial industry 38 Source: http://www.doksinet Chapter 6 – Other Perspectives 6.1 SEE Thematic Capitalization Pole 1 The main envisaged issues on the relationship SMEs & Finance The Pole 1 comments are referred to

technology development or research and innovation driven activities and finance provision. Systemic issues: With regard to funding of technology readiness levels (TRLs) TRL 1 to TRL 6 SMEs are challenged with attracting external or public funding. In some of the countries competitive funding sources exist, but access and seize of grants is limited. There is a broad variety of available support schemes. For higher TRL levels the state aid regulations are limiting the efforts of regional or national authorities. With regard to access to public competitive funding in innovation support programmes (like voucher schemes etc) one must also acknowledge the existence of public registers of potential beneficiaries that request rather a track record of “own” activities then easy access to public money available to back-up the risk born by engaging in research, technology development or innovation. Note the difficulty of access to risk finances or VC availability for higher TRL levels.

Practical issues: Knowing about different “national” financial instruments depends on information provision from funding agencies or support schemes. IE the EEN is in some countries very important, while other countries with a higher market potential for innovative products do not depend necessarily on such networks. SME is abroad definition, one must differentiate small SMEs and the bigger ones () The future role of Transnational Cooperation Programmes on Finance Priorities and objectives In my view TCP can support knowledge exchange and facilitate learning. Moreover, TCPs stimulate the public sector to “try out” new instruments with having some back up and “label” of EU funding and support. TCPs cannot replace national or regional action or replace national improvements (a bit the opposite to the Structural funds national OP´s actions). TCPs regularly develop the concept of knowledge providers and recipients. This is only half of the truth, as mutual understanding

supports own learning and supports good understanding of the own situation. TCPs are much too complicated to support SMEs in case they are eligible as project partners, this will lead to problems in the next TCP round (also the reimbursement rates are not very attractive, the control systems have to be adopted etc). Priorities should be given to indirect support measures for SMEs like capacity building for SMEs, supporting exchange/sharing of good practice of SMEs (of non-competitors). Indirect support would also mean to facilitate exchange between SME supporting organisations (and intermediaries) I do not think that the direct support to SMEs from TCP is a priority at all and state aid rules would not allow to do so. VC activities could be supported with methodologies and exchange opportunities. 39 Source: http://www.doksinet Assessment mechanisms for public spending and instruments in support of public administrations (like ministries, agencies, intermediaries on all spatial

levels) can be supported like the use of evaluation or i.E technology audits methodology. Public procurement actions (demand driven innovation action) can be also a good point. Project typologies Typologies that would support - are strongly dependent on national co-financing rules what sabotages or negatively affect the whole TCP system - Coordination actions that stimulate exchange on collaborative research of industry/SMEs with research providers and financing organisations along with higher TRL levels. This would support the establishment of a true knowledge based society - pilot actions that also look on alternative ways of financing like VC and that support exchange and methodologies how VC could operate easier (knowledge exchange between alternative funders), also the exchange with the classical loan providers would be important to stimulate their future involvement - active measures that support synergies with H2020, CBC, the national OP and also future strategic planning

of the Ops and the S3 related. Involvement and contribution of the financial sector In my view it would be useful to include VC groups, EIB, national banks or other financing organizations in TCPs. Indeed in a wider perspective also the regional financing authorities and funds existing in some cases (federal states) can be involved. Participation is always “on demand” but commitment is given only through direct participation. 6.2 SEE Thematic Capitalization Pole 5 The main envisaged issues on the relationship SMEs & Finance Within Thematic Pole 5 ‘Climate Change Adaptation’, no SMEs were involved but mainly research institutions and representatives from public administration and/or national authorities. Responding to climate change issues may not be a top priority for SMEs in comparison to other business issues they face especially in the current particular historical and financial moment. SMEs, while having a significant share in the responsibility for creating the

conditions for climate change, seem to need help to understand what they can do to help themselves cope with the threats stemming from climate change and to enhance their role in mitigating global warming. They also need expanded support and assistance, financial or other, to adapt to the challenges presented by climate change and take action to cut their carbon emissions. 40 Source: http://www.doksinet The interest of SMEs in the activities performed within the projects involved in the TP, and their attendance of the stakeholders workshops organized within them, testify an always growing interest of SMEs in the topic and their engagement in reducing carbon emissions and respond to the possible consequences of climate change. In this sense the SEE funded projects all over the region could provide the a sounded background and support for SMEs, while the EU funding programs should provide the necessary support and incentive SMEs to implement the required actions and activities The

future role of Transnational Cooperation Programmes on Finance Priorities and objectives Work towards the implementation of similar activities aimed at tackling the effects of climate events and hazards Contribute to the climate adaptation platform and to the EU strategy implementation Create of an EU shared strategy Involve all levels of administration and stakeholders Ensuring that several different sector policies are covered by the projects involved Tackle all sectors addressed by the adaptation challenges, involving partners from different sectors that could complement each other competences Ensure capitalization of the experience acquired and ensure that the successful cooperation established and set in place during the 2007-2013 programming period is carried within the next period Ensure the possible continuation of the cooperation established among the countries, partners, authorities involved in the projects financed through the SEE 2007- 2013, as this would be the most

tangible result of the successful cooperation established through the SEE projects and would represent the main achievement of the capitalization strategy. Project typologies Projects promoting early investment in national and regional centres of excellence for policy analysis on climate change Projects providing national governments with the evidence to develop robust climate change policies and advance sustainable development Involvement and contribution of the financial sector The involvement ‘on demand’ of the financial industry (i.e banks) could provide the necessary support to SMEs to take part into projects as partners, thus allowing them to receive additional funds - i.e loans/credit - to count on during project life. In a critical historical and economic context, this would incentive SMEs participation into EU research, cooperation and capacity building projects and at the 41 Source: http://www.doksinet same time enhance their capacities, stimulate job creation, and

expand their interest and commitment in tackling climate change. 6.3 SEE Thematic Capitalization Pole 8 The main envisaged issues on the relationship SMEs & Finance As an SME take notice that it is very hard to pre-finance our activities. Any kind of advance payment would be strongly suggested, at least to cover some basic needs (i.e travel + accommodation and part of the technical staff costs) The future role of Transnational Cooperation Programmes on Finance Priorities and objectives Whether transnational, national or local someone can see no difference in pre-financing needs. It seems though that a transnational program having a robust financial support should be more flexible in finding appropriate solutions. Allow pre-financing without bank guaranties in order to allow SME’s to take part and overcome fiscal reservations Simplify procedures to get things done in the shortest possible way. Allow shorter project/financial reporting periods Project typologies Allow national

authorities to put together national registries of financially/technically responsible potential partners as a rewarding policy for reliability in financial and technical matters alike Involvement and contribution of the financial sector The idea of having a due diligence procedure within the project may be a solution to fight national bureaucratic procedures in collecting, submitting and hopefully reimbursing expenses. In this perspective I would be positive 6.4 SEE Thematic Capitalization Pole 9 The main envisaged issues on the relationship SMEs & Finance The transport logistics sector with special regard to SME companies in South East Europe is depending on economic prosperity and cargo flows, as all other European and global commercial enterprises. In times of low economic growth and recession the situation of investments and their finance is limited to a minimum level or nonexistence. The price of the fuel – which is one of the main cost element for any transport &

logistic services – contain a lot of hidden taxes applied by the states and even if the price of the oil is decreasing, the price of the fuel still stand delaying the transport sector recovery. 42 Source: http://www.doksinet The future role of Transnational Cooperation Programmes on Finance Priorities and objectives With regard to the transport logistics sectors in South East Europe thematic focus should be given on traffic infrastructure as well as on transport logistics programme priorities, for fostering greener transport systems in these European territories. This should apply also to studies / researches / pilot actions regarding the utility of new transport fuels [ex. Liquefied Natural Gas], new technologies applied [dual fuel engines] and new safety standards and regulations in order to support the “greening way” but to ensure in the same time the safety of transport activities and the responsibility of the SME’s. In any case, as SME enterprises cannot always secure

co-financing (e.g 15% of total costs) of total project expenditures and cannot afford waiting for EC revenues 6-12-18+ months after these expenditures have become realized (see: negative cash flow) it could be quite hard to get them directly involved. On the other hand yes of course, a project which could analyze and map the bottlenecks of transport sector [road, rail and inland waterway] in the SEE area in terms of: finance, custom, fares, duties, etc. [only applied to state / public activities and not applied to business agreements among 2 or more private SME’s] and offer some proposals for removal of these bottlenecks could be a useful one. Project typologies An involved of stakeholders and users is of utmost importance for all kinds of projects, therefore also for transnational cooperation projects, but without any different types of programme financing, the inclusion of private market operators (SME,) will become very difficult. Best practice example on “SMEfriendly” is the

European programme “Horizon 2020”, which offers also advance payment to their project partners incl. industry partners Involvement and contribution of the financial sector Not into transnational cooperation programmes, as there exist already other programmes on European and national levels, which offer loans, seed capital etc. 6.5 Insights from other Transnational Cooperation Programmes – Interreg IVc 6.51 Policy Recommendations for fostering entrepreneurship A specific focus has been given to “Access to finance” within the set of policy recommendations published by the INTERREG IVc. Access to finance – whether in form of loans, seed funding, microfinance facilities, angel type investment or other equity funding, grants or guarantees – is particularly difficult in the current context of public sector austerity and limited liquidity. This is especially true for social entrepreneurs, who have a difficult time accessing private finance. 43 Source: http://www.doksinet A

key success factor of entrepreneurship support in the form of funding is to make it part of an integrated package of support measures including advice, guidance and training. Regional authorities can effectively use public funds to provide companies with access to finance. For example, a guarantee system has a higher return on investment in the long run in comparison to traditional grants. By giving out guarantees, regional authorities enable private funds to be accessible for start-up entrepreneurs. 6.52 Policy Recommendations for creating innovation systems The topic of “lack of resources” even if not directly referred to financial resources and SMEs is according to us also relevant. Especially when it comes to d) suggest support bodies to take a system approach in their operations and work for the benefit of the whole innovation system and avoid sub-optimization within their own field of work e) stress the importance for universities and research institutes to interact and

cooperate with businesses. We see several purposes of this, eg businesses can communicate early demand and provide direction in research, while in return business can be boosted by competence and creativity coming out of the research institutions. Knowledge development and diffusion was the innovation system function that most projects addressed; universities and research institutes are considered key players with often underexploited potential 6.53 Policy Recommendations for boosting innovation capacity in SMEs Difficulties are particularly evident when it comes to access finance for innovation. It is a seemingly perennial problem but one certainly exacerbated following the recent global financial crisis and current economic slowdown. Innovation is costly and companies face investment choices regarding scarce resources. Innovation is often in competition with other business functions for this investment. Regional policymakers have to develop financial schemes to help SMEs finance

their innovation process. Different sources of public and private financing can be implemented to support the SMEs” effort in innovation (vouchers, guarantee for bank loans, etc.), but what seems very efficient to us is the voucher system. It is a financial tool that enables SMEs to freely select the support they need (market analysis, intellectual property protection, technology transfer, first design, etc.), without being asked to provide the cash support. 44 Source: http://www.doksinet 7. Conclusions 7.1 Recommendations for policy/ programme makers Theory says that efficient markets should not require public intervention. However, as it has been stressed by almost all contributors, there are several market imperfections affecting SME finance that are serious enough to warrant the intrusion. These interventions should in any case be conditional and additional thus stimulating the entry of private capital in order to create self-sustainable markets in the long run. As described

above, when it comes to SMEs and financial resources, we can act at 2 different levels: - Finance as a means - Finance as a thematic objective Finance as a means General Recommendations Public financial support must improve the conditions for either entrepreneurship or business development but without distorting efficient market forces. Preconditions for this kind of contribution are: 1. Public money alone cannot finance SMEs and cannot be THE solution to the current crisis and to financial constraints in general. Public money could be used as seed money to attract subsequently private investors. There should also be a move away from grants towards revolving financial instruments (loans, guarantees or equity) which could have multiplier effects and encourage more private financing; 2. Public money should be channeled through experienced, market-oriented professionals who make investment decisions on a business basis, independently of political decisions. 3. Public support cannot

remove the risk associated with commercial activity at the firm level and should be used to make investments more attractive to private investors, not to bear the entire risk. 4. It is impossible to design catch-all policy instruments and, most of all, the identified tools must be constantly under review. 5. Especially in the countries that have been hardest hit by the crisis, financial institutions have only limited scope for support as they are facing budget issues themselves. This means that it is important for public support to join forces and combine efforts at the European and national levels. Specificities The increase of SME guarantee schemes seems to mirror the economic situation in the different countries. Countries which are suffering relatively badly from the crisis and experiencing weak economic growth or even a fall in economic activity have seen dwindling guarantee activity. In times of weak economic output growth, SME business activity, the related need for finance and

hence implied demand for guarantees are low. At the same time, public budget tightening and high financial risk perceptions are weighing on the supply of guarantees. At these times, public support at the European level can at least improve the situation on the supply side. In general, a wider use of risk-sharing 45 Source: http://www.doksinet instruments, by also using EU funds (like COSME) to partially guarantee portfolios of SME loans, would have a leverage effect on the volume of SME lending. In the field of private equity/venture capital the analysis summarized in chapter 1 shows that activity levels are very low. This applies to all segments of the market that are relevant to SMEs, but in particular to the early stage segment. In the current environment further support for this market is needed and the public authorities should continue to play their countercyclical role and to catalyse private investment. The long-term objective of this support is to establish a

well-functioning, liquid equity market that attracts a wide range of private sector investors. Moreover, alternative investor categories (such as corporate investors and business angels) should be incentivized to invest in European VC in order to fill the gap left by the adjusted behavior of the traditional private equity investors. Many SMEs need mezzanine capital to finance their expansion, which is often not supplied by the capital markets or the banks, especially at the present stage of the financial crisis. During the financial crisis also the mezzanine market has suffered. Moreover, mezzanine finance for smaller companies and in small amounts is not yet sufficiently developed in Europe. Here too, public support is very relevant With regard to microfinance, the European microfinance sector as a whole has been growing in terms of the number of loans disbursed over the past few years. However, without access to stable funding, the outlook for the sector in terms of growth and

self-sufficiency is limited. Commercial banks in Europe are expected to further reduce their lending to financially excluded people, small start-ups and microenterprises. Moreover, the general public support for microfinance provision is expected to decline over the coming years. Microfinance can make an important contribution to overcoming the effects of the crisis for certain specific groups, in particular to support inclusive growth. In the current environment support at the European level is becoming even more important – via funding, guarantees and technical assistance for a broad range of financial intermediaries, from small non-bank financial institutions to well-established microfinance banks – in order to make microfinance a fully-fledged segment of the European financial sector. Finance as a thematic objective of a EU Transnational strategy Recommended priorities and objectives There is a general agreement on the fact that a transnational approach could be important to

help enterprises to solve their problems and help them to make their business growth, getting some valuable inputs from the experience of SMEs from other countries. In terms of priorities, contributors have provided evidence of 1) Strengthening the link between innovation and finance 2) Further develop knowledge and competences also of the financial actors 3) Strengthen the role of service providers 4) Expand SMEs awareness level about financial tools and management 5) Focus on practice 46 Source: http://www.doksinet Specifically: Finance, R&D and innovation Access to finance is consistently rated as the biggest challenge for innovative companies. Therefore priorities in this area should be referred to - facilitate access to venture capital, corporate investment, business angel activity - stimulate the development of special instruments especially for seed, start-up and early-growth phases - cerate connections with international investors - increase the relationships

between R&D institutes and SMEs also through the provision of result oriented dedicated resources - increase the investor-readiness of innovative SMEs - improve the supporting capacity provided – at national levels - to innovative SMEs (reinforce the support framework interventions) Finance and financial actors The involvement of the financial community should be part of the high level objectives of transnational cooperation programs. Methodologies and tools which might be at the base of project actions should be harmonized and somehow discussed with financial operators as well as consider EU&National legal frameworks, the rules adopted by the financial community and the concrete needs of the SMEs. Strengthen the role of “service providers” Cooperation Programs should - stimulate the public sector to “try out” new instruments with having some back up and “label” of EU funding and support - prioritize indirect support measures for SMEs like capacity

building for SMEs, supporting exchange/sharing of good practice of SMEs (of non-competitors) - increase the exchange of knowledge between SME supporting organisations (and intermediaries) - extend availability of assessment mechanisms for public spending and instruments in support of public administrations (like ministries, agencies, intermediaries on all spatial levels) can be supported like the use of evaluation or i.E technology audits methodology - increase the adoption of public procurement actions (demand driven innovation action) Expand SMEs awareness levels 47 Source: http://www.doksinet Cooperation Programs should give priority to - solving practical problems of SMEs in their access to finance - helping SMEs through useful services which can help them concretely, valorizing the resources they have and, maybe, they are not able to valorize properly. - increase educational skills Recommended project typologies At a general level, a relevant number of

contributors have suggested to identify a way to provide funds to a small number of large strategic projects acting as mini-programs with the specific goal of tackling the Finance & SMEs challenge. Additionally, in order to avoid too complex project mechanisms and facilitate participation, a small dedicated program could be useful. Project typologies which have been suggested may be labeled under: - exchanges and capacity building - cooperation and partnership building - support framework conditions - pilot actions Exchanges and capacity building Coordination actions stimulating exchange on (or with) - collaborative research of industry/SMEs with research providers and financing organizations along with higher TRL levels - how VC could operate easier (knowledge exchange between alternative funders) - the classical loan providers would be important to stimulate their future involvement - innovative financial instruments in the programme area - difficulties and

opportunities for SMEs to get funds and financing, with peculiar reference to their Intellectual Property Right and Intangible Assets, because these are still rather uncommon and unknown issues - Promoting “SME-friendly” case studies of EU funded initiatives - transferring of know how regarding development of financial instruments, strategic and legal framework. Cooperation and partnership building 48 Source: http://www.doksinet Strengthening cooperation and innovative partnership building is another action which has been evidenced: - establish Innovative partnerships not based on merely financial principles. - promote economic and financial assessment of SMEs through benchmarking tools, to complete the advice of the credit institutions and to obtain an evaluation of the overall performance of the company compared to the average of the target market. - Financing R&D access for SMEs, Banks are usually not competent in this fields as they are simple sellers of

financial instruments elaborated in the main office: some specific parallel activities for developing banks knowledge how to serve SMEs in specific sectors relevant for the single territories, technical and technology needs and market chances. - establish and bring forward investments/business partnerships, Support framework conditions Projects aimed at increasing framework conditions should be focused on: - activities aimed at making national innovation support system more transparent and easier to use for domestic SMEs - promoting the implementation of the Small Business Act. Pilot Actions Testing alternative ways of financing (like VC) Promoting and supporting private/public partnerships Introduce public procurement as “first stage” financial mechanisms for innovative products and services Support synergies with H2020, CBC, the national OP and also future strategic planning of the Ops and the S3 related Support preparatory actions for pilot implementations of innovative

financial instruments. Create synergies between promotional actions of specific Programme areas and investment strategies Besides concrete financial instruments it is also important to provide soft-support services (eg. training, mentoring, business planning) for the SME, which helps the access to finance. Elaborate some standard SME financial schemes to support a “sustainable” start up of innovative actions Allow national authorities to put together national registries of financially/technically responsible potential partners as a rewarding policy for reliability in financial and technical matters alike Analyze and map the bottlenecks of transport sector [road, rail and inland waterway] in the SEE area in terms of: finance, custom, fares, duties, etc. [only applied to state / public activities and not applied to 49 Source: http://www.doksinet business agreements among 2 or more private SME’s] and offer some proposals for removal of these bottlenecks could be a useful one.

7.2 Recommendations for the financial sector There is quite a large consensus about the necessity of involving financial actors either as project partners or beneficiaries of transnational cooperation programs. The roles which have been envisaged and recommended may be summarized as follows: - play a more important role in carrying out policies in industrial sector, in strategies for development, in higher education, in business coaching and mentoring; - under certain circumstances it would be important to involve them in order to create a kind of virtuous circle, able to share needs of the territory and businesses, investment strategies, trends, economic scenarios; - concentrate their participation to large strategic projects and with reference to specific carefully designed actions; - provide useful consultancy in order either to study new financial tools, tailor made for the project’s partners and objectives or to increase SMEs competences in financial management In any

case, involvement should consider that participation to projects is not part of financial institutions’ business and probably it also lacks of staff to be able to contribute to such projects as a partner. Therefore their participation should be really focused on thematic and problem solving approaches. 7.3 Financing SMEs and Social Enterprises: final reflections and possible tools The introductory part of the “Report” provides an overview about the structure and needs of the EU SMEs and SEs mainly based on a study on SME’s access to Finance in 2013 elaborated by Ipsos MORI, requested by The Directorate General for Enterprise and Industry of the European Commission, in cooperation with the European Central Bank, While the Report rightly underlines from the beginning the importance of the huge area of SMEs – 20 million SMEs with 99% of business – it assumes in the following the results of the Ipsos MORI Report as representative of this entrepreneurial world. The results of

the cited study ignore the territorial-regional dimension of SMEs and the various dynamic beyond it, and the results seems to reflect the problems of enterprises placed in west-north part of Europe. For a study with focus on Eastern and South Europe a ”global” perception of the European production structure and systems, in particular with reference to SMEs and SEs, it appears inappropriate. The “Recommendation” ought to emphasize the dual structure of the European production systems and finance; a dualism that is not reflected in the institutional structure of EU, in its policy strategies and in the financial monetary system. The dualism of the EU economies is expressed on one side by the existence of a cooperative link between transnational enterprises – with the network of big industries attached to it – 50 Source: http://www.doksinet and the multinational finance industry, and on the other side by the existence of the world of SMEs and SEs linked to the local,

cooperative, popular credit institutions. Two economies with two finance systems. The problem of the EU is that its institutional structure and policy is elaborated to be functional to the first half of dualism (big business and finance) and hostile to the second part (SMEs, SEs, and cooperative local credit). To pursue a convergence between these two worlds of the economy, imagining a gradual transformation of the second half into the form and dynamics of the first one, is the proclaimed aim of the EU policies. The second half of the economy and its enterprises have not the aim to become bigger and more efficient in terms of the first simply because of the regional-territorial nature of this system and the cooperative government form. Its form is based on principles such as stakeholder, that decisively contrasts the concept of shareholder. Innovation and efficiency for this second economy ought to be searched in line with its nature, and not by reducing it the to the form and

performance of the first part. It is obvious that the biggest EU projects (Horizon, etc.) move in the direction of a general modernization of the production systems on the line indicated by big business and big finance. The outcome of these initiatives has affected the “second part” producing a divide between, on one side, the creation of large companies and organizations (districts, consortia, networks, etc.) able to achieve significant forms of self-financing (fundraising, donations, privileged access to foundations, public procurements, etc.); and, on the other side, the diffusion of co-operative structures at the local level to meet the growing demand for goods and services in the public and private sectors. The problem that emerge from the analysis is the one of the creation of European institution that would represents – in the business sector as well in the financial sector – the SMEs, SEs and their naturally attached credit institution. As mentioned in the report the

problem is not only the one of credit The mentioned enterprises have a long tradition of research and innovation. But the financial constrains are put on them via a tax system, the missing payment by the state of the good and services required, the obstacles put by the ECB to the lending activities of banks, local and cooperative credit in favor of SMEs and SEs. The recent initiatives taken with the institution of a European Bank Union are all moving in direction of a final destabilization of the local cooperative credit system on which SMEs, SEs enterprises rely. The report provides a rich documentation for the remarks made up to now in its second part, where local initiatives and projects are illustrated and analyses at national-regional level. The material provided suggest a methodology that starting from these local-regional-national needs and experiences, comparatively with regions and countries with similar structures and traditions, elaborate forms of increasing networking and

cooperation, but preserving and reinforcing the attachment to local economies. This does not of course impede the possibility to participate to production and service activities at the European and international level, bust still in coherence with the principles of local development an sustainability. 51 Source: http://www.doksinet 7.4 Some ideas to inspire new thinking Six criteria to DESIGN AND assess POTENTIAL policy Targeting: Targeting: The focus of a policy must be carefully matched to its objectives Transparency: The detailed substance and mechanism of policy should be known to investors Coordination: A policy is likely to be more effective if it builds on and leverages existing policies and markets Engagement: Up-front and ongoing engagement with impact investors is important for clarifying needs and building support Commitment: The level of real or presumed commitment to a policy from government, both in duration and resources, should be consistent with the need

Implementation: An institutional context and infrastructure that supports efficient delivery and modification is critical to success The justification for policy intervention may rest on a variety of ideas about the imperfect performance of markets. Among the arguments that advocates may make: Structural barriers lead to under provision of important social goods: For example, real estate markets and land use constraints may lead to a lack of affordable housing, or high costs of small enterprise finance in emerging markets may leave a gap in economic development; Private market actors may externalize negative costs onto society: For example, carbon (and other) emissions are unpriced and thus contribute to global warming and its consequent environmental, social, and financial costs; Investors may not capture positive externalities: Environmentally sustainable, healthy, and socially equitable communities create assets that benefit society but do not necessarily provide private benefit to

investors; Information asymmetry and uncertainty constrains market development: Investors may overestimate risk on the basis of poor or biased information about areas or communities, and uncertainty about the future may inhibit the flow of private capital to emerging markets and bottom of the pyramid investments; New investment sectors lack track records: Promising areas of development, such as alternative energy production or energy efficiency investment, may involve higher-risk investments with relatively short track records, limiting private capital investment that could bring these fields to scale. In each of these cases, public policies might be designed to directly subsidize, mitigate risk, create better information, or support upfront capital flows, in an effort to spark private market activity in support of specific public goals that otherwise would not take place. 52 Source: http://www.doksinet Bibliography - SMEs’ Access to Finance survey – Analytical Report,

November 2013. IPSOS MORI - Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European Long-term Investment Funds, Brussels, 26.62013 COM(2013) 462 final 2013/0214 (COD) - COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, TO THE EUROPEAN PARLIAMENT, TO THE COMMITTEE OF THE REGIONS, AND TO THE EUROPEAN AND SOCIAL COMMITTEE. An action plan to improve access to finance for SMEs {SEC(2011) 1527 final} - Brussels, 7.122011 COM(2011) 870 final - Ex-ante assessment methodology for financial instruments in the 2014-2020 programming period enhancing the competitiveness of SME, including agriculture, microcredit and fisheries. (Thematic objective 3) - Version 1.0 - March 2014, study was commissioned by the EIB, cofinanced by DG REGIO and assigned to the consortium led by PwC” - Citizens’ Summary of CENTRAL EUROPE 2020 Cooperation Programme, July 2014 - ADRIATIC IONIAN COOPERATION PROGRAMME 2014-2020, First draft, July 2014 - Danube Transnational Programme

2014 2020, Draft Cooperation Programme, Version 1.1, 30th May 2014 (after PC 8) - Balkan Mediterranean Programme 2014 2020, First Draft July 2014 - Investment and Investment Finance in Europe - Economics Department, European Investment Bank (2013) - Interreg Central Europe Cooperation Programme document - Final Draft, 10 January 2014. Based on the European Commission’s ‘Draft template and guidelines for the content of the cooperation programme’ – Version 3 of 28.06201 - Central Europe 2020 Cooperation Programme - CENTRAL EUROPE 2020 , European Territorial Cooperation 2014. July 2014 - Interreg IVc Policy Recommendation for fostering entrepreneurship, October 2014 - Interreg IVc Analysis Report – Innovation Systems, October 2014 - Interreg IVc Policy Recommendations for supporting rural development, October 2014 - Interreg IVc Policy Recommendations for boosting the innovation capacity of SMEs, October 2014 - Results of the experiment in programme-level

capitalisation on INTERREG IVC projects in the subtheme innovation, research and technology development - Final Report, EURADA 53