Finance and support
Access to finance
While big companies generally resort to financial markets to generate investment, small businesses only have access to finance through limited sources.
Before lending, banks estimate the relative risks of businesses, anticipating their growth and ability to repay. They will refuse a loan when it represents a potentially high risk and low return, which is often the case for smaller loans.
A third party can make it easier for a bank to grant a loan through a guarantee scheme, in which it covers part of the risk taken by the bank.
Small companies that present too high of a risk for banks and are unable to secure loans can raise capital by selling equity in the business.
Investors will provide risk capital to small, innovative businesses with potential for high growth if they anticipate a substantial profit from their share in the company.
Also called mezzanine finance or quasi-equity, combinations of loan and equity are often used to finance expansion or transfer of ownership for mature companies, where risks for investors are easy to assess.
Three parties are involved in transfers of ownership: the investor, providing the cocktail of loan and equity; the seller, who generally receives cash, and the buyer, who gets a significant percentage of company shares and an acceptable level of company debt.
Although the complexity of this financing means it is usually available only for transactions above €5 million, mezzanine finance is increasingly involved in smaller transactions.
To encourage companies to focus their efforts on certain areas of business activity, such as innovation and the environment, the EU and national governments offer incentives in the form of subsidies, typically co-financing activities within projects.
Businesses - especially small ones - can be put off from exploring the many opportunities in the EU market by obstacles like language barriers, lack of market information, or poor knowledge of administrative requirements and procedures.
Business support services set up by public authorities can help by giving companies the information and personalised assistance they need to access the EU market and exploit their potential for growth.
Delivered by experienced personnel, support services offer help locally - this is key to understanding a company's specific needs.
In addition to personalised assistance, authorities also consult businesses on their needs and provide them with comprehensive information tools.