The Small Business Act and how Europe is focussing on SMEs

Posted on the 16th September 2014 by Rosemary Fallows in Founders' blog

The Small Business Act for Europe (SBA) was adopted back in June 2008, although many people remain unaware of it. There is currently a public consultation to gather feedback and ideas to see how the act can be revised and improved.

The European Commission has enacted this legislation to recognise the crucial role of SMEs in the European economy. The SBA applies to all companies which meet the SME criteria.

The Small Business Act and how Europe is focussing on SMEs

European SME Week 2013 launch, Vilnius, Lithuania

What is an SME?

Small and medium-sized enterprises (SMEs) are defined as companies with fewer than 250 employees and which are independent from larger companies. SMEs have an annual turnover up to EUR 50 million or an annual balance sheet of up to EUR 43 million.

SMEs can be broken down into 3 categories as follows:

  • Micro-enterprises have fewer than 10 employees
  • Small enterprises have between 10 and 49 employees
  • Medium-sized enterprises have between 50 and 249 employees.

Why the focus on SMEs?

The SBA is of particular importance when you consider the vital role of SMEs in the European economy.

According to the European Commission there are approximately 21 million SMEs in Europe, employing 87 million people and accounting for 85% of net job creation.

The importance of SMEs cannot be underestimated and the role of SMEs became even more vital to assist with economic recovery after the 2008 global financial crisis.

The basics:

There are 10 principles to guide the design of policies at both national and EU level.

The SBA aims to enshrine the “Think Small First” principle into policy-making. The impact of legislation on small businesses should be considered as a priority.

The SBA update in 2011 was designed to assist SMEs cope with the global economic crisis by facilitating access to finance; cutting red tape; promoting access to markets and stimulating entrepreneurship.

The idea is for there to be less regulatory burden for small businesses – the EC will seek to exclude micro-enterprises from EU legislation or at least to introduce a special regime to minimise the regulatory burden on them.

One of the aims of the SBA is to level the playing field for SMEs throughout Europe, to encourage the creation of jobs and growth.

Analysis is showing that the SBA has not been fully implemented in a considerable number of member states. The act is being updated again with the aim of creating more opportunities for growth for European SMEs.

Let’s take a look at the main achievements and future proposals of the SBA:

Reducing administrative burden:

Achievements:

The average time of starting up a business has been reduced from 9 days to 4 and now costs, on average, EUR 315 instead of EUR 463.

Proposals:

The adoption of an EU regulation to promote further regulatory simplification. The aim is to make it possible to start up a company within 3 days for a maximum cost of EUR 100 and to be able to obtain all necessary licences within one month.

To make the application of the “SME test” (or equivalent) mandatory in all EU member states. This will ensure that all member states are prioritising the needs of SMEs.

To ensure a discharge within 3 years for entrepreneurs who have gone bankrupt. Many entrepreneurs who fail at their first venture go on to enjoy later success. They should be encouraged rather than hindered by bankruptcy legislation.

To encourage member states to implement simplified tax regimes for the benefit of newly-created companies to help speed the start-up process.

Accessing finance

Achievements:

The EU has introduced a range of programmes to mobilise loan and equity financing for SMEs.

The Directive on combatting late payment in commercial transactions has been implemented. There has been a culture of late payment across the EU which has had a serious detrimental affect on SMEs in particular. This Directive has been introduced to combat late payments and strengthen the position of SMEs when trying to collect money owed to them.

Proposals:

Promote and increase SME awareness of the financing programmes available within the EU.

Strengthen the venture capital market in Europe to attract more private institutional investors.

Make available all funds which have been allocated to EU-supported venture capital funds.

Develop alternative sources of finance in cooperation with the European Investment Bank. This will include promoting crowd-funding and developing mezzanine financing.

Promoting entrepreneurship

Achievements:

There are a range of programmes in place to encourage and support entrepreneurs. These include European SME Week, the European Enterprise Awards and Erasmus for Young Entrepreneurs.

Proposals:

To include entrepreneurial skills in more education systems and engage better with SMEs so that they are aware, and take advantage of, the support available.

Access to markets

Achievements:

The EU Services Directive makes it easier to set up a services business that can operate across Europe.

Proposals:

To further simplify company law. Cross-border trade can be given a boost by enabling SMEs to do business throughout the EU without having to set up separate companies in each member state. The EC has proposed the European Private Company Statute which will remove barriers to the internal market.

Protection of intellectual property is vital when expanding into new markets. Introducing an affordable and user-friendly system for intellectual property protection is one of the EU’s top priorities.

Here at Money Mover, we are encouraged by the European focus on SMEs. Understanding the particular needs of SMEs is vital as they face very different challenges to bigger companies.

We support SMEs by providing access to the kind of foreign exchange rates normally only available to bigger businesses. This enables our SME clients to compete on a more equal footing with their larger competitors.

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