Importance of Availability of Sources of Finance for Small and Medium Enterprises

Dr. Ninko Kostovski UACS

Importance of Availability of Importance of Availability of Sources of Finance for Small and Sources of Finance for Small and

Medium EnterprisesMedium Enterprises

Ninko Kostovski,PhDNinko Kostovski,PhD

University American College SkopjeUniversity American College Skopje


Why this topic?Why this topic?

SME can not perform their role in SME can not perform their role in society without diversified sources of society without diversified sources of finance finance

Access to funds, loans and investors - Access to funds, loans and investors - vital prerequisites for development of vital prerequisites for development of these enterprises and country these enterprises and country competivenesscompetiveness


Problems with SMEs Problems with SMEs

Survival Rate: Survival Rate: 50% will not survive first year of operations 50% will not survive first year of operations 85% will not survive third year of operations 85% will not survive third year of operations

Three most common reasons*:Three most common reasons*: Inadequate sales and credit terms Inadequate sales and credit terms Extensive investment in equipmentExtensive investment in equipment Lack of long term financing Lack of long term financing

(*(*MarkovskiMarkovski))


Possibilities for SME Financing in EUPossibilities for SME Financing in EU


Bank LoansBank Loans

Count for 70% of the external capital Count for 70% of the external capital

Collaboration and dialog between Banks - SMECollaboration and dialog between Banks - SME Round tables & SME Guide for Dealing with Banks Round tables & SME Guide for Dealing with Banks

Disadvantages:Disadvantages: Banks rigid & slowBanks rigid & slow Information asymmetryInformation asymmetry Innovative firms excluded Innovative firms excluded


Venture CapitalVenture Capital

10,8 Billion Euros for EU27 in form of: 10,8 Billion Euros for EU27 in form of:

Seed Capital Seed Capital Start up Capital Start up Capital Risk Capital for GrowthRisk Capital for Growth

Here (Western Balkans)? Here (Western Balkans)?

Not developed properly Not developed properly Owners are not willing to share control Owners are not willing to share control


Financial Components of other EU Financial Components of other EU ProgramsPrograms

Competitiveness and Innovative Framework Competitiveness and Innovative Framework Program (CIP)Program (CIP)

Seventh Research Framework Program (FP7)Seventh Research Framework Program (FP7)

Can be accessed through financial Can be accessed through financial intermediariesintermediaries

Can be used indirectly!Can be used indirectly!

Cross-Border Cooperation Program (CBC)Cross-Border Cooperation Program (CBC)


Facts Facts

SME can capitalize only from SME can capitalize only from concrete and close to ground concrete and close to ground measures:measures:

Reality often far from idyllic EU Reality often far from idyllic EU Documents Documents

Interventions too sophisticated for Interventions too sophisticated for average SME (technology transfer, average SME (technology transfer, fundamental research, energy fundamental research, energy efficiency...) to tapefficiency...) to tap


Facts Facts

And what aboutAnd what aboutSME lacking innovative SME lacking innovative

component?component?Simple family businesses? Simple family businesses? Western Balkans? Western Balkans?

In realty dedicated funds are not In realty dedicated funds are not used!used!


Cluster ApproachCluster Approach

Could prove convenient to meet the requirements for:

– Innovativeness– Regional dimension

of projects proposed for finance


Cluster ApproachCluster Approach

Change of paradigm:– From blanket approach in disbursement of

support & funding– To vehicles with industry focus

Expected: – To achieve higher marginal efficiency of the

external support– To be able to meet requirement for

– Innovativeness– Regional dimension of proposed

intervention


Problems with Cluster Approach

– How to trace clusters– Donors can support only legally established

cluster associations & formal links with the R&D institutions

– In Reality: SME change their profile too fast! Links are informal Firms are not necessarily collocated narrowly


UACS research for Ministry of UACS research for Ministry of EconomyEconomy

Survey of existing and potential concentrations Survey of existing and potential concentrations using structured focused groupsusing structured focused groups

Leveraged the presence and capacity of local Leveraged the presence and capacity of local business support and regional economic business support and regional economic development agencies to indicate several development agencies to indicate several existing and potential SME clustersexisting and potential SME clusters

Structure of SME support network similar & Structure of SME support network similar & experience gained can prove useful for other experience gained can prove useful for other countries of Western Balkan, too countries of Western Balkan, too


Thank You!Thank You!

Ninko KostovskiNinko Kostovski

University American College University American College SkopjeSkopje

Head of Management Head of Management DepartmentDepartment

[email protected]@uacs.edu.mk

www.kostovski.webs.comwww.kostovski.webs.com