SME Access to Finance - European Commissionec.europa.eu/commfrontoffice/publicopinion/flash/fl174_summ_en.pdf · Moreover, SMEs need to meet the challenge of adapting to the changing

Flash Eurobarometer

SME Access to Finance Executive Summary

Fieldwork: September 2005

Publication: October 2005

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This survey was requested by Directorate-General Enterprise and Industry and coordinated by Directorate-General Press and Communication

This document does not represent the point of view of the European Commission.

The interpretations and opinions contained in it are solely those of the authors.

European Commission

FLASH EUROBAROMETER 174

“SME Access to Finance”

Realised by EOS Gallup Europe upon the request of the European Commission

(Directorate-General “Enterprise and Industry”)

Survey organised and managed by Directorate-General “Press and Communication” (Opinion Polls, Press Reviews, Europe Direct)

This document does not reflect the views of the European Commission. Any interpretations or opinions expressed in this report are those of the authors

alone.

SURVEY: September 2005

EXECUTIVE SUMMARY: September 2005

FLASH EB N°174 «SME Access to Finance» Executive Summary p. 1

INTRODUCTION .......................................................................2

SURVEY HIGHLIGHTS...............................................................3

1. THE STATE OF SME’S..................................................... 5 2. THE USE OF FINANCIAL INSTRUMENTS ............................ 8 3. ACCESS TO FINANCE FROM BANKS................................ 11 4. THE USE OF SMALL LOANS ........................................... 16 5. THE USE OF VENTURE CAPITAL ..................................... 17 6. FINANCIAL MANAGEMENT ............................................ 19


INTRODUCTION

Improving the access to finance of small and medium enterprises is crucial in fostering entrepreneurship, competition, innovation and growth in Europe. Access to sufficient and adequate capital to grow and further develop their activities is a difficulty faced by many European SMEs. This situation is compounded by the difficulties in accessing finance as SME financing is considered by many financial providers as a high risk activity that generates high transaction costs and/or low returns on investment. Moreover, SMEs need to meet the challenge of adapting to the changing financial environment and the increasing complexity and extent of financial reporting. In order to assess the extent to which SME’s face difficulties when it comes to access to finance, the Directorate-General Enterprise and Industry turned to managers of SME’s in the 15 old Member States for their views. A total of 3047 managers were interviewed by telephone between the 5th and the 19th of September 2005 under the Flash Eurobarometer polling system. A technical note indicating the manner in which the 15 EOS Gallup Europe institutes conducted interviews can be found at the end of this analysis. It provides further detail on interviewing methods as well as on the statistical margins of error.


SURVEY HIGHLIGHTS

The main findings from the survey on SME’s access to finance can be summarised as follows: On average, more than three quarters of the SME’s surveyed currently have sufficient financing to see their projects through. Whilst this indicates that the financial situation of SME’s is generally healthy, the survey reveals large country differences.

SME’s are most in need of social and fiscal regulations that are more suited to their sector of activity in order to develop further. This is the response managers gave most frequently (31%) when asked to choose one element from a list that best assures the development of their company. Fourteen percent of managers indicate that their company is most in need of easy access to means of financing, in third place after social and fiscal regulations and better qualified people available on the market. At the national level, the importance placed on easy access to finance varies from 6% in France to 21% in Italy. To encourage access to finance through the use of small loans, SME’s are most interested in lower interest rates, less demanding guarantee requirements and simpler procedures for granting loans. Only 15% of those surveyed have recently taken out a loan of 25,000 € or less or intend to do so within the next six months. According to 60% of the managers surveyed, lower interest rates are the factor that would most encourage them to resort to taking out a small loan. 34% would feel most encouraged if the guarantee requirements were less demanding or if simpler procedures would apply. Leasing or renting and overdrafts are the types of financing most frequently used by SME’s to finance their activities. The use of venture capital is very rare among SME’s. Just over half of the SME’s surveyed have already made use of leasing or renting and overdrafts, 45% of the SME’s surveyed have used a loan with a term of more than 3 years and 31% have taken out a short-term loan. Only 6% of SME’s have increased capital from venture capital funds. The use of venture capital for financing the activities of SME’s is not on the agenda of many SME’s in the foreseeable future. Only 14% of the SME’s surveyed say that they intend to open up or increase their company’s capital in order to meet financing needs within two years’ time, 11% intend to do so within 3 to 5 years and 3% say they will do so in six or more years’ time. To date, banks are the financial institution that SME’s have used most in order to obtain financing. Nearly 8 out of 10 SME’s surveyed have used a bank for financing. Leasing or renting companies were used by around a quarter of SME’s and 1 in 10 SME’s have used a public institution supporting investment.


Access to financing from banks is perceived as extremely pertinent to the financial well-being of SME’s. About half of the SME’s surveyed say they cannot successfully complete their projects without a loan from the bank. Perceptions concerning the ease of access to loans granted by banks are mixed. 46% of the SME’s surveyed feel that access to loans granted by banks is easy while 47% perceive it as being difficult. Many SME’s find it more difficult than previously to obtain a bank loan. 33% of the SME’s surveyed feel that it is now easier to obtain a bank loan, 15% say that nothing has changed but 42% feel that it is now less easy than it was a few years ago. A substantial minority of SME’s feel that the offers from the banks are not suited to their needs. 42% of the SME’s surveyed hold this view, but 50% disagree with it. The view that banks do not want to take risks in lending to companies is widespread among SME’s. 71% of the SME’s surveyed hold this view, while only 23% disagree with it. Despite the criticisms voiced about banks, SME’s have good relationships with their bankers. Close to 7 out of 10 managers surveyed feel that their banker is sufficiently supportive of their company in terms of financing and about two-third feel that their banker understands the specifics of their company’s sector of activity. SME’s are most likely to turn to banks when in need of information on financing. 45% of those surveyed firstly turn to banks when they look for information or advice on financing. 20% firstly turn to accountants and 9% turn in first instance to external consultants. The large majority of SME’s meet their financial management needs internally. This is the prevailing view in all the countries included in the survey.


1. THE STATE OF SME’S On the whole, the situation of SME’s is stable when it comes to investment, the level of debt, the market share compared to the competition, cash flow and turnover. Views are slightly more restrained with regards to the profit and profit margin of SME’s: asked whether these have improved, deteriorated or remain unchanged since last year, the managers surveyed are most likely to respond that their company’s profit and profit margin have deteriorated (both 38%).

Situation of SME's compared to last year

6%

11%

20%

22%

22%

22%

24%

26%

32%

41%

49%

36%

51%

52%

56%

55%

33%

39%

4%

2%

38%

22%

10%

16%

14%

38%

28%

50%

38%

5%

5%

16%

6%

7%

3%

1%

Levels of export

Research and development

Profit margin

Cash flow

Market share compared to main competitors

Investment

Level of debt

Profit

Turnover

Improved Remains unchanged Deteriorated [DK/NA]


More than three out of four SME’s have sufficient financing to see their projects through (77%). However, as the following graph shows, there are large differences in the financing situation of SME’s between the EU Member States included in the survey.

Views on the current financial state vary somewhat by sector, with SME’s operating in the field of industry least likely to have sufficient financing to see projects through (74%) and those operating in the construction sector most likely (81%). The longer a company has existed, the more likely it is that it’s current financing is sufficient to see projects through. As to be expected, companies that have cut the number of employees in the past year are less likely to have sufficient financing to see project through (65%) than are companies where the number of employees has stayed the same (80%) or increased (79%). In terms of growth, the number of employees in the majority of the SME’s surveyed has remained the same (67%). It has decreased in one in seven of the companies surveyed (17%) and increased in one in six of the companies (15%). The reported stability applies particularly to micro-sized companies, which represent the vast majority of SME’s in Europe. SME’s with 10 to 49 employees (small companies) and those with 50 to 249 employees (medium-sized companies) were more likely to report an increase in the number of employees around 30%) than were micro-sized companies (12%).

Company's current financing is sufficient to see project through

85%

82%

66%

68%

73%

73%

77%

77%

79%

79%

84%

85%

91%

91%

93%

94%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

IT

PT

EL

DE

SE

EU15

NL

LU

BE

FR

ES

AT

UK

DK

IE

FI


In order to further develop, SME’s are most in need of social and fiscal regulations that are more suited to their sector of activity (31%). One in six managers feel that better qualified people available on the market would best assure the development of their company (16%).

Fourteen percent of the managers surveyed feel that easy access to financing would best assure the development of their company. At the national level, this varies from 6% in France to 21% in Italy. Stricter regulation regarding competition from outside the European Union is regarded as the element that best assures the company’s development by approximately one in ten of the managers surveyed. The other elements to assure the development of SME’s are selected by only a small percentage of the respondents. It should be noted that many of the SME’s included in the survey do not have a development plan for the coming three years (62%). Looking at the various sectors in which SME’s operate shows that companies active in industry are most likely to have a development plan (42%) and that those working in construction are least likely to have such a plan (31%). The likelihood that a company has a development plan decreases as the number of years it has existed goes up. The likelihood of a development plan increases, though the relationship is not linear, as turnover increases.

Easy access to means of financing

21%

20%

18%

15%

14%

14%

13%

11%

11%

11%

8%

8%

8%

7%

7%

6%FR

BE

EL

PT

FI

DK

UK

NL

AT

IE

EU15

SE

ES

LU

DE

IT

Which of the following elements would best assure the development ofyour company?

31%

16%

14%

11%

9%

6%

5%

9%[DK\NA]

[OTHER]

An advice and support service for company'sdevelopment

Greater production capacity

Stricter regulation regarding competition fromoutside the EU Easy access to means of financing

Better qualified people available

Social and fiscal regulations more suited to yoursector of activity


2. THE USE OF FINANCIAL INSTRUMENTS Banks are by far the financial institution most used when SME’s need financing. Close to 8 out of the 10 companies surveyed went to a bank in order to obtain financing (79%). Around a quarter of the SME’s approached leasing or renting companies (24%) and one in ten went to public institutions supporting investment (11%).

Though banks are the most approached institution in all the Member States that were included in the survey, the extent to which SME’s obtain financing from banks varies substantially. In Finland, just over half of the SME’s surveyed went to a bank (52%), compared with 91% in Ireland and 92% in Austria. Analyses of company size, sector, years of activity and turnover show that SME’s in the services branch are least likely to use banks to obtain financing (74%), whereas companies operating in industry are most likely to do so (86%). In terms of the types of financing used by SME’s, 51% of the companies surveyed have already made use of leasing or renting and 50% already used an overdraft. Loans are another widespread type of financing: 45% of the SME’s surveyed used a loan with a term of more than 3 years and 31% used a short-term loan (less than 3 years).

Institutions used by SME's to obtain financing

12%

2%

2%

4%

7%

11%

24%

79%

[DK/NA]

[Other]

Venture capital companies

Private financing companies (other than banks)

Private investors

Public institutions supporting investment

Leasing/renting companies

Banks


Leasing or renting is most widely used by German SME’s (71%), followed by SME’s in Austria (65%) and Sweden (63%). This type of financing is least used in Luxembourg (23%) and Finland (27%). The use of an overdraft to finance SME activities is most common in Denmark (83%) and Ireland (81%). In Sweden (13%), Greece (15%) and Finland (17%) this type of financing is rarely used. Loans longer than three years have been used by nearly 6 out of 10 SME’s surveyed in France (58%) and are also quite common in Belgium (57%), Germany (56%) and Denmark (50%). SME’s in the UK are least likely to use this type of financing (28%). Short-term loans are most widely used in Spain (41%), Germany (40%) and Belgium (39%) and least used in The Netherlands (13%), Finland (17%), the UK (18%) and Austria (19%). The various types of financing examined are less frequently used by micro-sized firms than is the case for small or medium-sized companies.

Types of financing used by SME's

6%

9%

19%

31%

45%

50%

51%

Increase in capital dedicated to venture capitalfunds

Increase in capital dedicated to privateindividuals

Discount/factoring

Loans shorter than 3 years

Loans longer than 3 years

Overdraft

Leasing/renting


A quarter of the SME’s that already used a loan to finance their activities, borrowed more than 100,000 €, whilst around one in three of these SME’s borrowed between 25,000 € and 100,000 € or less than 25,000 € (36% and 34%, respectively).

Amount of last loan applied for

5%

34%

36%

25%

[DK/NA] Less than €25,000 Between €25,000 and €100,000 More than €100,000

Base: SME's that have alreadymade use of a loan (n=1872)


3. ACCESS TO FINANCE FROM BANKS As already stated, SME’s are most likely to approach banks when they are in need of financing. However, views about the ease of access to loans granted by banks are mixed. 47% of the managers surveyed feel that access to loans granted by banks is difficult while 46% feel that it is easy.

It should be noted that respondents were most likely to opt for the “fairly easy” response category (36%), followed by the “fairly difficult” response category (29%). Those who feel that access to loans is very difficult (17%) greatly outnumber managers who feel it is very easy (10%). An analysis of the national results shows large variations between the countries participating in the survey. In Finland, 95% of managers feel that access to loans granted by banks is easy, followed by managers in Ireland (79%) and Denmark (75%). In Germany, on the other hand, 80% of managers surveyed find access to loans granted by banks difficult. In Italy, Luxembourg and The Netherlands those who feel access to loans is difficult also outnumber those who feel it is easy (56% vs. 38%, 53% vs. 34% and 48% vs. 41%, respectively). An analysis of the various types of SME’s identified in the survey reveals differences across sectors, with SME’s operating in the field of services significantly less likely to find it easy (41%) than those operating in construction (52%). In terms of turnover, companies with between 1 and 2 million € are least likely to find access to loans granted by banks easy (38%), whereas companies with a turnover of 5 million € or more (58%) are most likely to find this easy.

Would you say that today, access to loans granted by banks is ....

10% 36% 29% 17% 7%

Very easy Fairly easy Fairly difficult Very difficult [DN/NA]


The survey indicates that many SME’s are not finding it as easy today to obtain a bank loan (42%) than they did a few years ago. Around a third of the SME’s feel that it is easier nowadays than it was a few years ago to obtain a bank loan (33%) and 15% say that nothing has changed.

The country analyses show that managers in Greece are most likely to feel that compared to a few years ago it is now easier to obtain a bank loan (85%), followed by managers in Ireland (75%). In Finland (53%), the UK (51%) and Spain (50%), this view is shared by at least half of the managers interviewed. The reverse is again the case in Germany, where 84% of managers find it not as easy compared to a few years ago. More than half of the SME’s surveyed in Luxembourg (58%) and The Netherlands (51%) share this view. Opinions about the ease of obtaining a bank loan nowadays compared to a few years ago differ depending on sector with SME’s operating in services least likely to feel that it is now easier (30%) and SME’s active in construction most likely to feel this way (39%). SME’s reporting a decrease in the number of employees in the past year or with a turnover between 1 and 2 million € are least optimistic with over half reporting that it is not as easy anymore to obtain a bank loan.

Would you say that compared to a few years ago it is easier or not as easy to obtain a bank loan?

33% 15% 42% 10%

Easier Identical Not as easy [DN/NA]


The most important reason why respondents feel that it is now not as easy to obtain a bank loan compared to a few years ago is that banks request too much information (72%). Another widely voiced criticism is that the administrative side of the loan application is very demanding (59%). Close to half of the managers who feel that it is not as easy anymore say that loan granting procedures are too long (47%) and around a third feel that interest rates are too high (32%).

The view that it is not as easy as it used to be to obtain a loan because banks request too much information is most widely held in Germany (87%), the UK (86%) and Denmark (81%). At 37%, people in Sweden are least likely to feel that this is why it is now not as easy anymore to obtain a bank loan.

Reasons why it is considered not as easy to obtain a bank loan todaycompared to a few years ago

3%

8%

32%

47%

59%

72%

[DK/NA]

[Other]

Interest rates are too high

Loan granting procedures are too long

The administrative side of the loan application isvery demanding

Banks request too much information


There is widespread consensus among all of the managers surveyed, regardless of whether they feel that it has become easier or not to obtain a loan, which banks do not want to take risks in lending to companies, with 71% holding this view and only 23% disagreeing with it.

The perceived hesitance of banks to want to take risks does not affect the relationship managers of SME’s have with their banker, which is generally quite favourable. Close to 7 out of the 10 managers surveyed feel that their banker is sufficiently supportive of their company in terms of its financing (68%) and close to two-third of the managers feel that their banker understands the specifics of their company’s sector of activity (65%).

Your banker ...

30%

28%

35%

40%

18%

15%

11%

9%

6%

8%

... understands thespecifics of your sector of

activity

... is sufficientlysupportive of your

company in terms of itsfinancing

Totally agree Tend to agree Tend to disagree Totally disagree [DN/NA]

"The banks do not want to take risks in lending to companies"

45% 26% 16% 7% 6%



Access to finance from banks is extremely pertinent to the financial well being of SME’s. About half of the SME’s surveyed say they cannot successfully complete their projects without a loan from the bank (49%).

Around two-fifth of the managers surveyed feel that the offers from the banks are not suited to their needs (42%). However, the majority of managers interviewed disagree with this statement (50%).

"The offers from the banks are not suited to your needs"

15% 27% 31% 18% 9%


"Without a loan from the bank, your projects cannot be successfully concluded"

22% 27% 20% 28% 3%



4. THE USE OF SMALL LOANS The vast majority of the SME’s surveyed has not recently made a request for a loan of less than 25,000 € for their company’s activity (83%). Of the fifteen percent that have recently made a request or that intend to do so in the coming six months, the purchase of equipment is the most frequently stated need for such a loan (68%), followed by the financing of working capital (34%) and promotion and marketing (12%). Whereas respondents are in general quite gloomy about the access to loans from banks, those that have taken out a small loan or intend to do so are not as pessimistic about the procedures involved. 30% feel that in general the steps necessary for obtaining a loan of less than 25,000 € are easier to other forms of their company’s financing. 20% say it is more difficult and 44% say it is identical to other forms of financing. According to 60% of the managers surveyed lower interest rates are the factor that would most encourage them to resort to a loan of less than 25,000 €. 34% would feel most encouraged if the guarantee requirements were less demanding or simpler procedures for granting loans would apply. For just over one in five respondents shorter delays in granting loans would be the most encouraging incentive to resort to a small loan (22%).

The perceived encouraging effect of lower interest rates varies significantly among the countries included in the survey and ranges from 30% in Finland to 67% in Germany.

Elements that would most encourage SME's to resort to a loan of less than 25,000 €

19%

4%

22%

34%

34%

60%

[DK/NA]

[Other elements]

Shorter delays for granting loans

Simpler procedures for granting loans

Less demanding on quarantee requirements

Lower interest rates


The desire for less demanding guarantee requirements in this regard is most widespread in Luxembourg (54%) and least frequently expressed in Denmark (12%). Simpler procedures for granting loans is seen as the most encouraging element by only 6% of the SME’s in Denmark, compared with 58% in Germany. Only 2% of Danish SME’s regard shorter delays for granting loans as the most encouraging element whilst in Germany this is the view of 41% of SME’s. 5. THE USE OF VENTURE CAPITAL Venture capital is not yet a widely used form of financing for SME’s. On average, only 2% of those surveyed went to venture capital companies in order to obtain financing and 6% used an increase in capital dedicated to venture capital funds. Looking towards the future does not reveal a substantial increase in the use of venture capital. Two-thirds of the managers surveyed do not foresee the opening-up or increase in their company’s capital in order to meet financing needs. 14% foresee this to happen in two years’ time, 11% in three to five years’ time and 3% in six or more years’ time. An analysis of the country results reveals large variations in the extent to which the use of venture capital is foreseen in the future. As the following graph shows, only 4% of SME’s in Finland are thinking about opening up or increasing their company’s capital within the foreseeable future, compared with half of the SME’s surveyed in Ireland.


The survey indicates that young companies are more likely to open up or increase capital than those that have been operating for many years. Among SME’s that have operated for 30 years or more, one in six affirm this intention in the future, compared to about one in three SME’s that have existed less long. Companies that have seen an increase in the number of employees in the past year are significantly more likely to consider opening up or increasing their capital (37%) than are companies where the number of employees has stayed the same or decreased (26% and 28%, respectively). For SME’s that do foresee developments in the area of venture capital in the future, the opening-up of capital to private individual investors is the most likely method (34%), followed by the opening-up of capital to employees (22%) and a management buy-out of the company (12%). A quarter of the managers who foresees a form of venture capital in the future does not yet know in which way this will take form.

Opening up / increase in company's capital is foreseen in the future

50%

45%

43%

43%

38%

28%

22%

22%

22%

21%

21%

18%

14%

7%

6%

4%

0% 10% 20% 30% 40% 50% 60%

FI

FR

ES

BE

NL

PT

DK

AT

UK

LU

EU15

SE

DE

IT

EL

IE


6. FINANCIAL MANAGEMENT

The large majority of the SME’s surveyed meet their financial management needs internally (82%). The following graph shows that this is the prevailing view in all the countries included in the survey, although there is some variation in the extent to which this is the case.

The higher the turnover, the more likely it is that SME’s meet their financial management needs internally. 93% of companies with a turnover of more than 5 million € hold this view, compared to 78% of companies with a turnover of 250,000 € or less. Analyses of the size, sector, years of activity and type of shareholding of SME’s show no further significant differences on this issue.

SME's needs in terms of financial management are met internally

87%

88%

96%

95%

95%

95%

89%

88%

84%

83%

83%

82%

78%

78%

76%

68%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

NL

SE

DE

IT

EU15

FR

UK

ES

LU

AT

IE

BE

PT

EL

FI

DK


When in need of information or advice on financing, on average SME’s turn firstly to banks (45%), accountants (20%) and external consultants (9%). Asked who they next turn to results in the same top three with 24% turning to banks, 18% turning in second instance to accountants and 11% turning to an external consultant.

The average results hide significant national differences in terms of the percentage of SME’s that firstly turn to banks when looking for information about financing.

Sources SME's would turn to when looking for information or advice on financing

2%

3%

7%

7%

9%

7%

11%

18%

24%

3%

1%

2%

4%

4%

6%

6%

9%

20%

45%

[DK/NA]

[Other]

Specialised professional media

Relatives and/or friends

Professional contacts

A legal expert

A professional association

An external consultant

An accountant

A bank

Firstly

Secondly


SME’s in Finland are most likely to firstly turn to banks when they look for information or advice about financing (61%), followed by SME’s in Spain (51%) and Belgium (50%). In Greece and Ireland, on the other hand, only around a quarter of SME’s turn firstly to banks.

% of SME's turning to banks for information and advice (by country)

16%

29%

27%

34%

29%

16%

23%

24%

30%

23%

25%

29%

18%

31%

23%

18%

23%

25%

36%

40%

41%

45%

45%

45%

47%

47%

49%

49%

49%

50%

51%

61%

EL

IE

FR

NL

LU

PT

UK

EU15

DE

DK

SE

AT

IT

BE

ES

FI

Firstly

Secondly

Documents

SME Access to Finance - European Commissionec.europa.eu/commfrontoffice/publicopinion/flash/fl174_summ_en.pdf · Moreover, SMEs need to meet the challenge of adapting to the changing