What are SMEs?
SMEs are small and medium enterprises, as the acronym suggests. By definition, they are small businesses that have revenues, assets or employees below a certain threshold, with each country having its own definition of what constitutes these thresholds. The abbreviation SME is used by international organisations across the world, such as the World Bank, the European Union, and the United Nations. While the majority of SMEs are startups, the most important aspect of their classification is that they are focused on expanding entrepreneurship within the private sector.
Why SMEs are essential for innovation
Though small in size, SMEs play an important role in promoting economic growth and have an oversized role in spurring innovation. They outnumber large businesses, increase job creation, and employ vast amounts of people, making them an integral part of the global economy. Furthermore, SMEs are generally entrepreneurial in nature, which helps to shape innovation by virtue of their operation - let alone the specific innovative technologies that are developed by SMEs all over the world.
Innovation created by SMEs is especially important in recent years when factoring in the novel coronavirus pandemic caused by COVID-19, which has slowed growth and halted innovation - and brought the world to the cusp of an unprecedented financial crisis.
How grant funding benefits SMEs
Grant funding benefits all projects and enterprises. However, it is even more critical to SMEs to gain working capital without having to worry about interest rates - or a lack of finances to slow what could otherwise be very useful technologies or advancements. It is crucial for promising SMEs to be able to show their proof of concept, and a lot of the time this is only possible with grant funding.
What kind of business funding options are available for SMEs?
There are several financing options available in addition to grants, though most require repayment with interest - and not all projects that qualify for grants will necessarily qualify for financing. Term loans, such as regular business loans and bank loans, and other financial services are available for promising SMEs with well-defined business plans or positive cash flow. However, many deserving SMEs - especially those with cutting-edge technologies - do not qualify for these types of funding because of perceived risk. There are more options, such as venture capital or seeking out angel investors - but these are often more difficult to secure than the myriad of grant funding sources that are available specifically for SMEs and technologies that are advancing the state of the art.
What are some SME funding programs in the EU?
There are several funding opportunities in the EU that are specifically designed for SMEs. These programs include:
The “Access to finance” portal, which helps find EU financing for projects in the form of loans, guarantees, equity funding and many others
The Microfinance Facility of the Programme for Employment and Social Innovation (EaSI) helps the SME sector by providing loans of up to €25,000 to individuals for setting up or developing a small business in an emerging market
The European Social Fund (ESF) provides support to SMEs to help them improve functionality and competitiveness
The European Maritime and Fisheries Fund (EMFF) enables SMEs to benefit from higher levels of support
European Investment Bank (EIB) provides loans for SMEs through the LIFE programme for Climate Action
SME-specific funding opportunities in the field of development funded by the European Commission’s Directorate-General for International Cooperation and Development
The Executive Training Programme, which encourages SMEs to expand their high growth business in Japan and Korea.
Other SME Finance Options
There are several other SME financing options to help close the financing gap that many companies encounter. There are numerous financial products, offered by traditional banks or financial intermediaries. However, unlike grant funding, most of these options require paying back capital, usually with significant interest rates. It is best to exhaust all grant funding options before exploring financing options in the form of loans or other financial products.
Here are a few readily available options that aid in financing SMEs:
Lines of Credit
Lines of credit are a simple way to have funding at your disposal without being indebted for more than you need - at least in theory. Interest rates are typically favourable for SME borrowers, though your personal credit will usually have to be in good standing to verify the project's creditworthiness. If your credit cards are under control, tapping into a line of credit might be a good supplement to go along with other forms of funding.
Investment funds are great places to get funding for SMEs or startup projects that are poised to be profitable. Institutional investors typically only want to see that their money will earn them ROI on the amount they give, though some are interested in supporting good causes and sustainable tech ideas. Obtaining funding from this source is similar to obtaining grant funding, with a bit more focus on how it will make money in the real world. And you will likely have to give up a piece of your company or profits in return for the funding, which is virtually never the case with receiving grants
Crowdfunding is a great avenue to try to secure funding if you have an idea that is perceived as cool or innovative in a way that makes people want to get in on it early. It takes a lot of time and effort to run a successful crowdfunding campaign - but it probably takes less of both than submitting a meticulously written grant proposal.
Much like with institutional investing and crowdfunding, angel investing requires an idea that grabs people's attention and will likely prove to make money once your SME is off the ground and running. If you can prove your SME is already there, finding angel investors should not be much of a problem.
The fintech revolution has created a plethora of lending platforms that bypass financial institutions and connect private lenders directly to people looking for SME business financing. You can browse interest rates, payment periods, and every aspect of a potential loan directly within each platform. While earning grant funding is preferable to taking out loans in almost every way, sometimes grants are simply not available. This is a way to find tailored loan options that cater specifically to SMEs.
Looking to the future of SMEs
Simply put, SMEs are the future—or at least a big part of it. They are hotbeds for much-needed innovation, often doing more to create and market new technologies than larger organizations. SMEs directly affect—and create—future tech and industry throughout the EU and the rest of the world. It is imperative for these companies to get the funding they need to ensure that they succeed.
How LINQ Consulting works with SMEs to secure funding
Are you an SME located in the United Kingdom? You may be eligible for R&D tax credits on any own contribution to your research projects. Get in touch to discuss further and get help with your R&D tax credit application at firstname.lastname@example.org