Opinion of the Committee of the Regions on financing SME growth
Date: 2007-02-13
Institutions: European Committee of the Regions
Subjects: European Investment Fund, borrowing, financial aid, financing method, regional development, small and medium-sized enterprises, venture capital

30.6.2007

EN

Official Journal of the European Union

C 146/73

Opinion of the Committee of the Regions on financing SME growth

(2007/C 146/11)

THE COMMITTEE OF THE REGIONS

— strongly recommends the continuous use of SME impact assessments for any new EU legislation and

policies that might directly affect how SMEs develop;

— recommends measures to provide SMEs with easy access to the intermediate financial institutions and
organisations responsible for providing CIP and JEREMIE. The CoR also recommends that the EIB
group be more proactive in communicating its role, added value and the methods of accessing the
new instruments CIP and JEREMIE;

— strongly recommends that the European Commission include regional best practices in its further
discussions at European level. Regions can stimulate the potential private capital available by creating
and financing networks of ‘informal capital’, bringing private investors in contact with companies in
seed and start-up phase;

— strongly recommends that

financial measures be accompanied by complementary instruments.
Regions are important providers of the necessary infrastructures for facilitating SMEs, such as cluster
development and professional training. Regions also have valuable experience to offer in (ESF funded)
incubator housing with common facilities and personnel policy, by supporting innovation, coaching
and offering investment readiness programmes. There is also a need to include entrepreneurship in
education programmes. It is precisely the complementarity of such measures which ensures that star-
ters have a greater chance of success.

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EN

Official Journal of the European Union

30.6.2007

Reference document

Communication from the European Commission to the Council,
to the
Economic and Social Committee and to the Committee of the Regions: Implementing the Community
Lisbon programme: Financing SME growth — Adding European value

the European Parliament,

COM(2006) 349 final

THE COMMITTEE OF THE REGIONS,

Having regard to the Communication from the Commission to the Council, the European Parliament, the
European Economic and Social Committee and the Committee of the Regions; Implementing the Community
Lisbon Programme — Financing SME Growth — Adding European Value — Modern SME Policy for growth and
employment COM(2006) 349 final;

Having regard to the decision of the European Commission of 29 June 2006 to consult the Committee of
the Regions on the subject, under the first paragraph of Article 265 of the Treaty establishing the European
Community;

Having regard to the decision of the CoR Bureau of 25 April 2006 to instruct its Commission for
Economic and Social Policy to draw up an opinion on this subject;

Having regard to its Draft Opinion CdR 338/2006 rev. 1 adopted on 15 December 2006 by its Commis-
sion for Economic and Social Policy (Rapporteur: Mr Harry Dijksma (NL/ALDE), Member of the Executive
Council of the province of Flevoland;

Whereas:

23 million SMEs throughout Europe are responsible for the delivery of 67 % of the EU's GDP and the crea-
tion of 75 million jobs and that in certain sectors SMEs are accountable for delivering up to 80 % of total
employment, with 99 % of all enterprises classified as micro-enterprises (consisting of 1 to 9 persons)

adopted the following opinion at its 68th plenary session, held on 13-14 February 2007 (meeting of
13 February)

1. The Committee of the Region's views

THE COMMITTEE OF THE REGIONS

Supporting the Lisbon process

1.1 welcomes the European Commission's Communication
on Financing SME Growth, which gives a clear analysis of the
problems and instruments of the institutions of the Community
and the Member States;

a

1.2
supports the spring council conclusions, emphasizing
that an integrated financial market and sufficient access to
finance are crucial for the growth of small and medium sized
framework for
enterprises. The Lisbon process offers
improving access to finance, through reforms at national and
EU levels. The involvement of local and regional authorities is a
key factor for the success of the Lisbon reforms. To support a
true partnership between the different levels of government, the
Committee of
the Regions has undertaken a European-wide
survey on the involvement of local and regional authorities in
the development of
the National Reform Programmes, an
analysis of the local and regional authority dimensions in the
NRPs and launched a Lisbon monitoring platform.

of the Lisbon agenda. European risk capital markets are still
operating at levels below their full potential. This is a reflection
of the failure of the market in (pre-)seed and early-stage equity
finance due to problems both in the supply of, and in the
demand for, risk capital. As a result, potential innovations are
not being fully exploited leading to lower economic growth and
lower levels of employment. Moreover, very few European early
stage companies using innovative technologies have grown to
become global leaders in their sector;

1.4 welcomes the intention of the Community institutions
and the Member States to create the conditions allowing a
sustainable threefold increase in investment by venture capital
funds in seed and start-up companies by 2013;

acknowledges

1.5
and banking
that both the
systems used in Europe still vary significantly among the
Member States and that there is a need for further harmonisa-
tion to ensure that SMEs have a level playing field to harness
the potential of the internal market to drive forward growth and
employment;

capital

A better environment for risk capital investment

1.3
acknowledges that — despite considerable advances in
recent years — it is clear that more action is required and more
instruments need to be developed if Europe is to meet the goals

1.6
agrees with the Commission that an exit strategy is of
the utmost importance for any successful venture capital invest-
ment. The CoR concurs with the Commission that many Euro-
pean stock markets have established good alternatives to allow
growth companies to raise capital and therefore welcomes
measures facilitating EU wide access to financing through
growth stock markets;

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Official Journal of the European Union

C 146/75

1.7
acknowledges that the existing gap in early-stage finan-
cing inhibits growth and innovation in the EU. The CoR agrees
with the Commission that a further specialisation of funds and
the development of special sectoral expertise is required for
successful investments;

tax costs or

agrees with the Commission that professional venture
1.8
capital managers should be able to raise capital and invest
across borders in a single market without having to incur exces-
sive
face heavy bureaucratic burdens. The
Committee calls upon Member States to take appropriate
measures to ensure fair competition on an equal footing for
cross-border investments, which would harmonise tax costs and
cut bureaucratic burdens on a reciprocal basis;

1.9 welcomes the new proposal
for a European Patent
ensuring reduced costs for SMEs. The high costs of the present
European Patent hamper the rapid economic development of
innovations.

More debt finance for SMEs

relation for private investors and makes them more willing to
enter the venture capital market;

1.14 welcomes the EU instruments of the 7th Framework
Programme for Research and Development, the Competitiveness
and Innovation Framework Programme (CIP) and JEREMIE;

1.15 welcomes the opportunity provided for by the Euro-
pean Fund for Regional Development Regulation which would
involve using EU co-funding to set up a knowledge voucher
system to foster innovation-access to the market;

acknowledges that

1.16
the European Investment Bank
(EIB) and the European Investment Fund (EIF) are not equipped
to have direct relations with SMEs, but to provide technical
assistance and capital along with the instruments of JEREMIE
and CIP via intermediate financial institutions and organisations
in the Member States and their regions;

1.17
acknowledges that EU instruments are largely focused
on starters and high flyers, despite the fact that 75 % of SMEs
fall into a different category.

1.10
acknowledges that bank loans continue to be the main
source of finance for small and medium sized enterprises. The
II will raise the weighting on
Committee regrets that Basel
riskier commercial lending by 50 %, which will almost certainly
increase the cost of borrowing for starting and innovating enter-
prises;

2. The Committee of the Regions' recommendations

THE COMMITTEE OF THE REGIONS

1.11
regrets that a key problem regarding SMEs' access to
finance is the withdrawal of large banks from local markets in
rural and under populated or economically weak areas. As a
result, this leads to greater reliance on locally anchored banks
which specialize in lending to SMEs. A change of regulation in
this field could have an important impact on the availability of
funding to SMEs;

is

that Europe

acknowledges

characterised by a
1.12
number of cultural
traits, which also constitute a potential
source of growth. Small and medium-sized enterprises should
be encouraged to improve their attitude towards risk-taking and
their entrepreneurial spirit, as a means of counteracting obsta-
cles to growth.

The EU contribution to SME financing

Supporting the Lisbon process

2.1
recommends that the Commission encourage a wide
range of solutions for improving SMEs' access to finance, so
that financing can be offered tailor-made to meet the financing
needs of individual SMEs. The diversity of European SMEs is
one of the main assets of the European economy;

2.2
therefore strongly recommends the continuous use of
SME impact assessments for any new EU legislation and policies
that might directly affect how SMEs develop.

A better environment for risk capital investment

recommends that

2.3
the Commission and the Member
States should make more use of the facilities for risk capital
investments and risk sharing models, to create incentives for
private investors to use risk capital instruments for SMEs;

1.13
acknowledges that there is a need for concrete, tailor-
made solutions for the target group in order to provide risk
capital. The options open to regional authorities to provide
capital for risk capital funds are limited and the Committee
therefore welcomes the opportunity for the ERDF to provide
capital for regional risk capital funds. The provision of public
funding against profitable conditions changes the risk-return

2.4
recommends policies to address changes of culture and
encourage risk taking, which will help achieve the Lisbon
Agenda. The CoR also recommends that, in their policies, the
Commission and Member States continue to remove the ‘stigma
of failure’ related especially to the non-fraudulent bankruptcy
issue.

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Official Journal of the European Union

30.6.2007

More debt finance for SMEs

Better governance

2.5
believes that the current diversity of credit institutions
on the European retail banking markets reflects the variety of
the demand for financial products and services by individuals,
SMEs, corporations and local authorities. To ensure that this
demand is continuously met, it therefore recommends that EC
legislation should not favour any particular banking model, or
type of customer, over another;

2.6
recommends that the experiences of local and regional
authorities are taken on board in the process of exchanging
knowledge and best practices in the thematic work conferences
and Round Tables organized by the Commission. The exchange
of knowledge between the key players in the Member States is
of key importance for keeping up to date in the relatively small
world of risk capital supply;

foresees that — due to the aging population — a larger
2.7
number of firms will be put up for sale and that, accordingly,
the financing of take-overs (buyout and buy-in) deserves atten-
tion.

The EU contribution to SME financing

2.8
recommends measures to improve SME — especially
micro-enterprise — access to the co-operation programmes
within the FP7;

to provide SMEs with easy
2.9
recommends measures
access to the intermediate financial
institutions and organisa-
tions responsible for providing CIP and JEREMIE. The CoR also
recommends that the EIB group be more proactive in commu-
nicating its role, added value and the methods of accessing the
new instruments CIP and JEREMIE;

recommends continuous monitoring of

2.10
the specific
opportunities and challenges on the European finance market,
such as the effects of demographic changes;

recommends a more

2.11
role for EIF in
providing assistance for regional risk capital funds. EIF should
therefore consider providing knowledge and experience to
regional funds below a minimum size of 35 million euros;

important

2.12
recommends combining existing SME information
shops at EU, national and regional level to create a transparent
and easy accessible one stop information shop. The use of
existing regional
functions of
government services (E-government) should be encouraged.

institutions and the internet

Brussels, 13 February 2007.

2.13
strongly recommends that the European Commission
include regional best practices in its further discussions at Euro-
pean level. Regions can stimulate the potential private capital
available by creating and financing networks of
‘informal
capital’, bringing private investors in contact with companies in
seed and start-up phase;

strongly recommends that

financial measures be
2.14
accompanied by complementary instruments. Regions
are
important providers of the necessary infrastructures for facili-
tating SMEs, such as cluster development and professional
training. Regions also have valuable experience to offer in
(ESF funded)
incubator housing with common facilities and
personnel policy, by supporting innovation, coaching and
offering investment readiness programmes. There is also a need
to include entrepreneurship in education programmes.
is
precisely the complementarity of such measures which ensures
that starters have a greater chance of success;

It

recommends that Member States and the EU step up
2.15
their efforts to complete the single market,
implement corre-
sponding single market legislation and remove any unwarranted
administrative impediments to cross border cooperation —
insurance barriers — to
including fiscal and export credit
improve the competitiveness and openness of
the European
market in a global economy;

2.16
recommends encouraging the involvement of business
angels in regional economic development across Europe and
vice versa. It is well known that business angels prefer to do
business in their own regions, that is within a ratio of 100 to
the ‘angel's’ place of residence. Business angel
150 km of
networks need greater visibility;

recommends the use of a regional

2.17
revolving fund
instrument, where public participation is channelled through a
fund or funds structure to leverage private sector investment
capability. The new state aid rules should enable regions to
continue working with this sustainable instrument;

recommends
regional and national

2.18
that EU instruments on risk capital
instruments. Additional co-
support
funding generates a higher volume and critical mass for the size
of the fund and its success rate could be improved through such
portfolio diversity.
It should also enable cross-border invest-
ments,
lead to the harmonisation of schemes and to lower
market fragmentation in the EU.

The President

of the Committee of the Regions

Michel DELEBARRE