16.6.2022
EN
Official Journal of the European Union
L 161/87
Guidelines (3) as part of the State aid Modernisation package (4).
The 2014 Risk Finance Guidelines will expire at the end of 2021.
However, Member States may continue to see a need to provide risk finance aid, and guidance on how to support risk finance in full compliance with State aid rules remains necessary.
2.
In this regard, SMEs are the backbone of Member States’ economies, both in terms of employment and of economic dynamism and growth, and are therefore also central to the Union’s economic development and resilience as a whole.
As acknowledged in the SME Strategy for a sustainable and digital Europe (5), the Union’s 25 million SMEs employ around 100 million people, account for more than half of the Union’s gross domestic product (GDP) and play a key role in adding value in every sector of the economy.
They bring innovative solutions to address challenges like climate change, inefficient use of resources and loss of social cohesion, and they help spread this innovation supporting the green and digital transition and strengthening the Union’s resilience or technological sovereignty.
However, to be able to grow and unleash their full potential, SMEs need financing.
This is especially true in innovation-oriented, high-tech, high risk sectors.
Therefore, an efficient risk finance market for SMEs is crucial for entrepreneurial companies to be able to access the necessary funding at each stage of their development.
3.
Despite their growth prospects, start-ups and SMEs often face difficulties in gaining access to finance, particularly in the early stages of their development (6) and when they need additional funding to expand.
At the heart of those difficulties lies a problem of asymmetric information: start-ups and SMEs, especially when they are young or in new or high-tech sectors, are often unable to demonstrate their credit-worthiness or the soundness of their business plans to investors and banks.
In such circumstances, the type of active screening and research that investors undertake for providing finance to larger or more established companies may not be worthwhile in the case of transactions involving SMEs and start-ups because the screening costs are too high relative to the value of the investment.
Therefore, irrespective of the quality of their project, the innovativeness of their technology and growth potential, start-ups and SMEs will likely not be able to access the necessary finance as long as they lack a proven track record and sufficient collateral.
That problem may be particularly pronounced as regards investments into innovative green, high-tech, digital, or aerospace-based technologies or into social innovations driven by social entrepreneurs (7).
As a result of that asymmetric information, business finance markets may fail to provide the necessary equity or debt finance to newly-created and potentially innovative and high-growth start-ups and SMEs, resulting in a persistent capital market failure preventing supply from meeting demand at a price acceptable to both sides, which negatively affects SMEs’ growth prospects and undermines the Single Market’s productivity growth and overall resilience of the Union’s economy.
In certain circumstances, small midcaps and innovative mid-caps face the same market failure.
4.
The consequences of a company not receiving finance may go beyond that individual entity, due in particular to growth externalities.
Many successful sectors witness productivity growth not because companies present in the market gain in productivity, but because the more efficient and technologically advanced companies grow at the expense of the less efficient ones (or ones with obsolete products).
Moreover, the economic sectors involved and the overall economy benefit from positive growth externalities linked to the accumulation of knowledge possessed by firms (organizational capital) or by workers (human capital), as well as from the introduction of new
(3) Communication from the Commission – Guidelines on State aid to promote risk finance investments (OJ C 19, 22.1.2014, p. 4).
(4) Between 2012 and 2014, the Commission carried out an ambitious State aid modernisation programme based on three main objectives, for more details see Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on EU State aid Modernisation (SAM), COM(2012) 209 final of 8.5.2012: (a) fostering sustainable, smart and inclusive growth in a competitive internal market; (b) focusing the Commission’s ex ante scrutiny on cases with the biggest impact on the internal market while strengthening the cooperation with Member States in State aid enforcement; and (c) streamlining the rules to ensure faster decision making.
(5) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions ‘An SME Strategy for a sustainable and digital Europe’, COM(2020) 103 final of 10.3.2020. (6) See the ‘Evaluation support study on the EU rules on State aid for access to finance for SMEs’, European Union (2020), available on-line: https://ec.europa.eu/competition/state_aid/modernisation/risk_finance_study.zip (7) Such innovations include for instance changing social practices in support of the green or digital transitions, or making ICT careers more accessible to women.