07/07/2014 - Financing conditions for small and medium-sized enterprises (SMEs) remain a pressing concern in many countries, according to a new OECD report.
According to the OECD, SMEs and entrepreneurs are critical to ensuring economic growth is sustainable and inclusive. However, start-ups and small firms continue to face significant obstacles to fulfilling their potential to innovate, grow and create jobs, particularly when it comes to obtaining access to finance.
Financing SMEs and Entrepreneurs 2014: An OECD Scoreboard says that SMEs continued to face the dual challenge of an uneven recovery and bank deleveraging through 2012. Subdued growth and demand overall translated into declining profits for SMEs and reduced availability of internal funding in most countries. At the same time, the financial sector continued the deleveraging process started in the aftermath of the global financial crisis. In countries hit by the sovereign debt crisis, deficiencies in capital adequacy squeezed credit availability for the entire banking system, but impacted SMEs more than large firms, due to their greater dependence on bank financing.
The analysis of financial indicators from 31 countries over 2007-12 shows that in most countries, monetary easing did not result in an increased flow of credit from financial institutions to the private sector, especially SMEs. On the contrary, following a weak recovery in 2010-11, in 2012 the stock of outstanding loans decreased in some countries and expanded at a slower pace in others, including emerging economies that had experienced substantial business credit growth in 2010-11. Moreover, SMEs experienced stiffer credit terms than large firms, in the form of higher interest rates, shortened maturities and increased requests for collateral. This reflected heightened risk aversion on the part of banks.
In 2012, equity funding had recovered to its pre-crisis level in 15 out of 26 countries for which this data is available, partly as a result of targeted policy measures. Nevertheless, bank lending continues to be the most common source of external finance for many SMEs and entrepreneurs, including innovative and high-growth enterprises.
The report illustrates that payment delays added to cash flow constraints, and bankruptcy figures remained high in most countries. Significant increases in failing companies were observed in the countries hit by the sovereign debt crisis, sometimes rising by as much as 30 to 40% from 2011 to 2012.
The OECD report fills a longstanding gap in data needed to monitor SMEs’ financing conditions using comparable indicators. Released annually, it aims to increase understanding of SME financing needs, helps in the design and evaluation of policies and monitors the implications of financial sector reforms on access to funding for small businesses. The report provides detailed country profiles of financial conditions for SMEs in the 31 countries covered, and a thematic chapter on alternative finance instruments for SMEs, with a focus on mezzanine finance.
The countries covered in the report include: Austria, Belgium, Canada, Chile, Colombia, the Czech Republic, Denmark, Finland, France, Greece, Hungary, Ireland, Israel, Italy, Korea, Mexico, the Netherlands, New Zealand, Norway, Portugal, Russia, Serbia, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Thailand, Turkey, the United Kingdom and the United States.
The report was presented in Rome at an event organised by the OECD, the Italian Ministry of Economic Development and the Confederation of Italian Industries.