Table of Contents
The 25 million small and medium-sized enterprises (SMEs) in Europe account for 99.8% of all firms and are a significant source of job creation and prosperity, employing 66.6% of workers and producing 55.7% of value-added in the non-financial business sector.
Sustainable development has been one of the fundamental objectives of the European Union for nearly 20 years, and it is now the priority of the Next Generation EU, which allocated 750 billion euros to projects addressing sustainability-related topics (e.g.: environment, natural resources, digital innovation…).
Supporting European SMEs in the transition towards more sustainable business models means supporting Europe to develop a more inclusive and green economy.
Creating a SME-friendly environment for existing companies and new entrepreneurs is another one of the EU’s main objectives. The adoption of the Small Business Act (SBA) in 2008 and the Entrepreneurship 2020 Action Plan have been the most important European policy frameworks for SME policy during the past decade. In March 2020, the European Commission (EC) renewed its commitment to an SME-friendly environment with the presentation of the Communication “An SME Strategy for a sustainable and digital Europe”.
The Strategy consists of three main pillars:
Support to the sustainable and digital transitions of European SMEs
Support to improve SMEs’ Market access and funding
Support through the framework provided by the 2020 New Industrial Strategy for Europe
The Strategy outlines three Key Drivers to support on the long-term the Union’s industrial base – including the competitiveness and viability of EU SMEs:
The three Key Drivers are underpinned by a set of inter-connected and reinforcing fundamentals covering:
Additional supporting measures:
The European Union provides a wide range of financing instruments in the form of grants, loans, guarantees, and contributions to EU companies, independently of their size and business sector.
Overall, EU funding opportunities can be divided in two categories, based on their allocation methods:
Within the two categories outlined above, European funding can also be allocated through the provision of appropriate financial instruments, taking the form of equity or quasi-equity investments, loans or guarantees, or other risk-sharing instruments, provided through financial intermediaries in support of interventions with potential economic sustainability.
More than 76% of the EU budget is managed under the “shared managed” system, in collaboration with national and regional administrations, and mainly through five European structural and investment funds (ESIF):
These are funds that aims to consolidate the economic and social cohesion of the European Union by correcting imbalances between regions, focusing on investment in infrastructure, aid to businesses and services. In the context of the COVID-19 pandemic, the ERDF can be activated to finance health-related expenses and further initiatives to support the viability and competitiveness of small and medium-sized enterprises.
The ERDF focuses its investments on several key priority areas. This is known as “thematic concentration”:
The resources dedicated to these priorities, estimated to be around €226 billion for the 2021-2027 period, will be allocated depending on the category of region.
Furthermore, some ERDF resources must be channelled specifically towards low-carbon economy projects:
Fund aimed at fostering employment opportunities and promoting the innovation of education and training programs, whilst promoting the social inclusion of the most vulnerable categories. as well as administrative capacity. The Fund further provides reskilling opportunities and technical support to EU SMEs – particularly to support the environmental and digital transitions.
In the 2021-2027 period, the ESF will provide some €89,6 billion in funding to:
Cohesion Fund (CF)
Funding initiative dedicated to those Member States with a gross national income (GNI) per capita amounting to less than 90% of the European Union’s average GNI. Its objectives include the reduction of economic and social disparities and the promotion of sustainable development.
The Cohesion Fund allocates a total of € 46,6 billion to activities under the following categories:
Funding instrument under the Common Agricultural Policy (CAP) that supports rural development strategies and projects. It also forms part of the European structural investment funds (ESIF).
The EAFRD budget for the 2021-27 period amounts to around €286 billion. The budget will be spent over the course of this period, through the implementation of rural development programmes which run until the end of 2030.
It is distributed according to six priorities:
On the other hand, certain European programs are managed directly by the European Commission, or indirectly through agreements between the European Commission and other European institutions or agencies, such as the European Investment Bank (EIB). Below some of the most relevant examples of these financing mechanisms meant to support European businesses.
COSME is the EU Program for the Competitiveness of Enterprises and SMEs, with a budget of €2.3 billion for the period 2014- 20203.
The program’s support for SMEs is based on the following actions:
COSME is a program implementing the Small Business Act (SBA),which recognizes the central role that SMEs play in the EU economy.
InnovFin – EU Finance for Innovators (Horizon 2020)
A joint initiative promoted by the European Investment Bank Group (EIB, and European Investment Fund, EIF) in cooperation with the European Commission under the Horizon 2020 Program.
InnovFin’s financing instruments cover a wide range of equity loans, guarantees and financing to innovative companies, in all eligible sectors in EU Member States and associated countries. Financing is provided directly or through a financial intermediary, usually a bank or fund.
EIC Accelerator (European Innovation Council)
Specific measure dedicated to small and medium-sized enterprises, within the European Innovation Council (EIC) and supported by Horizon 2020, which aims at promoting the innovative potential of SMEs.
This tool finances projects that, starting from an innovative idea already tested, support the company in introducing its innovative product/service to the market by expanding its business and/or acquiring new ones.
Initiative managed by the EIF on behalf of the European Commission and launched under the Creative Europe program (2014-2020). The guarantee instrument was created to improve access to finance for SMEs in the cultural and creative sectors.
With a budget of €251 million, it supports small and medium businesses in the cultural and creative sectors, whilst fostering their competitiveness.
EaSI’s “Microfinance and Social Entrepreneurship” project supports actions in two thematic areas: micro-credits and micro- enterprises for vulnerable groups and micro-enterprises; social entrepreneurship.
The main three objectives of the Programme are:
The following paragraphs describe the measures taken to support enterprises in the specific context of the COVID-19 pandemic. The initiatives outline particularly reference to the possible solutions that European Funds can offer to address companies’ organizational and liquidity needs, as well as to support workers in terms of income support and retraining.
As part of the Coronavirus Response Investment Initiative (CRII and CRII+),the European Commission has temporarily extended the possibilities of support that Member States can normally grant to companies on the basis of the current EU state aid framework.
In addition to the traditional forms of aid and/or financing- co-financing of specific initiatives and projects, new types of aid have been temporarily implemented. These support mechanisms mostly aim to:
Companies facing a sudden lack of liquidity because of the COVID-19 pandemic therefore access the following support mechanisms, which will, however, have to be notified to the European Commission for prior approval:
Regarding subsidies, repayable loans, and tax breaks, funding can reach up to €800,000 per company (€100,000 in the primary production of agricultural products and €120,000 in the fisheries and aquaculture sector).
Grants can be allocated either in a non-repayable setting (no refund nor interest rates) or through facilitated repayment mechanisms. Companies wishing to access these financing tools will have to participate to public calls submitting a project proposal to the paying agency. These usually include information concerning the business’ economic and financial activity, a marketing plan, with indications on commercial strategies, and a planning of the company’s performance in the years following the implementation of the financial intervention.
The guarantees, on the other hand, may have a maximum duration of 6 years and relate to loans for investments and/or working capital. Companies could thus access the capital necessary for immediate liquidity needs and future investments by applying for loans that will be covered by State guarantees, which can guarantee up to 90% of the loan.
Soft loans can be provided by a public body or a bank, based on specific national or regional conventions and may be requested by companies, startups and freelancers who want to invest in innovative projects or for the development of their business, benefiting from lower interest rates.
Program for the purchase of temporary assets in both the public and private sector with a total budget of €750 billion. Foreseen measures under this initiative include:
Implementation of banking guarantee schemes based on existing programs. Through the Fund, the ECB allocates €25 billion to scale up its support to SMEs and others in the real economy by mobilizing up to €200 billion.
The initiative, with a total budget of €37 billion, will be dedicated to reinforcing EU health systems, safeguarding the viability of European SMEs, and to protect labour markets and other vulnerable sectors of the Union’s economy.
Creation of an emergency fund that will redirect €1 billion from the EU budget as a guarantee to the European Investment Fund to incentivise banks to provide liquidity to SMEs and midcaps. This initiative is expected to support at least 100,000 European SMEs and small mid-caps with about €8 billion of financing.
Instrument meant to help protect jobs and workers affected by the Coronavirus pandemic in the form of short-term support to Member States that request its activation.
It provides up to €100 billion in financial assistance to Member States, in the form of loans granted on favorable terms by the EU (borrowed on the financial markets).