The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses

Access to financing continues to be one of the most significant challenges for the creation, survival and growth of SMEs1 especially innovative ones. The problem is being exacerbated by the most severe financial and economic crises in decades. Financing has been a key area of work for the OECD Working Party on SMEs and Entrepreneurship (WPSMEE) for several years. In June 2004, Financing Innovative SMEs in a Global Economy was one of the themes addressed by the 2nd OECD SME Ministerial Meeting in Istanbul. In March 2006, the OECD Global Conference on Better Financing for Entrepreneurship and SME Growth , held in Brasilia, assessed the SME financing gap. Further work and research on Financing Innovative and High- Growth SMEs was carried out in 2007-2008. In October 2008 the 34th Session of WPSMEE engaged in a preliminary exchange of views on the impact of the global crisis on SME and entrepreneurship financing and discussed strategies so far adopted by governments to deal with the problem. In order to further the debate on policy responses to the global crisis, a Round Table on the Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses* was held in Turin on 26-27 March 2009 under the auspices of the OECD WPSMEE and hosted by Intesa Sanpaolo. The Turin Round Table had before it an issues paper which was based on the responses of 29 OECD Members and non-Members, as well as the European Commission and the European Investment Fund, to a questionnaire which covered the supply of financing to SMEs, their demand for financing, the credit conditions, loan approvals and defaults as well as information on equity financing. The responses also described in detail the policy measures taken by governments for SME and entrepreneurship financing. The presentations and discussions of the Turin Round Table have been incorporated into this report. The Round Table was an important milestone in the WPSMEE's commitment to contribute to the OECD Strategic Response to the Financial and Economic Crisis which may have persistent effects on SME and entrepreneurship financing. The outcomes of the Turin Round Table will be further developed S * Ex. Summary for the OECD High-level (possibly Ministerial) Meeting on SMEs and Entrepreneurship, "Bologna + 10", to be held in November 2010. Importance of SMEs in "normal times" and in times of crisis SMEs and entrepreneurs play a significant role in all economies and are the key generators of employment and income, and drivers of innovation and growth. In the OECD area, SMEs employ more than half of the labour force in the private sector. In the European Union, they account for over 99 % of all enterprises. Furthermore, 91 % of these enterprises are micro-firms with less than 10 workers. Given their importance in all economies, they are essential for the economic recovery. Even in 'normal' economic conditions governments have recognised that, to survive and grow, SMEs need specific policies and programmes - hence the comprehensive range of SME measures currently in place across the OECD members. However, at the present time, SMEs have been especially hard hit by the global crisis. These firms are more vulnerable now for many reasons: not only has the traditional challenge of accessing finance continued to apply, but new, particularly supply-side, difficulties are currently apparent. It is important to stress that SMEs are generally more vulnerable in times of crisis for many reasons among which are: it is more difficult for them to downsize as they are already small; they are individually less diversified in their economic activities; they have a weaker financial structure (i.e. lower capitalisation); they have a lower or no credit rating; they are heavily dependent on credit and they have fewer financing options. SMEs in global value chains are even more vulnerable as they often bear the brunt of the difficulties of the large firms,download.