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

Importance of Availability of Sources of Finance for Small and Medium Enterprises. Ninko Kostovski,PhD University American College Skopje. Why this topic?. SME can not perform their role in society without diversified sources of finance

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

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  1. Importance of Availability of Sources of Finance for Small and Medium Enterprises Ninko Kostovski,PhD University American College Skopje

  2. Why this topic? • SME can not perform their role in society without diversified sources of finance • Access to funds, loans and investors - vital prerequisites for development of these enterprises and country competiveness

  3. Problems with SMEs Survival Rate: 50% will not survive first year of operations 85% will not survive third year of operations Three most common reasons*: Inadequate sales and credit terms Extensive investment in equipment Lack of long term financing (*Markovski)

  4. Possibilities for SME Financing in EU

  5. Bank Loans • Count for 70% of the external capital • Collaboration and dialog between Banks - SME • Round tables & SME Guide for Dealing with Banks • Disadvantages: • Banks rigid & slow • Information asymmetry • Innovative firms excluded

  6. Venture Capital • 10,8 Billion Euros for EU27 in form of: • Seed Capital • Start up Capital • Risk Capital for Growth • Here (Western Balkans)? • Not developed properly • Owners are not willing to share control

  7. Financial Components of other EU Programs • Competitiveness and Innovative Framework Program (CIP) • Seventh Research Framework Program (FP7) Can be accessed through financial intermediaries Can be used indirectly! • Cross-Border Cooperation Program (CBC)

  8. Facts • SME can capitalize only from concrete and close to ground measures: • Reality often far from idyllic EU Documents • Interventions too sophisticated for average SME (technology transfer, fundamental research, energy efficiency...) to tap

  9. Facts • And what about • SME lacking innovative component? • Simple family businesses? • Western Balkans? • In realty dedicated funds are not used!

  10. Cluster Approach • Could prove convenient to meet the requirements for: • Innovativeness • Regional dimension of projects proposed for finance

  11. Cluster 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

  12. 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

  13. UACS research for Ministry of Economy • Survey of existing and potential concentrations using structured focused groups • Leveraged the presence and capacity of local business support and regional economic development agencies to indicate several existing and potential SME clusters • Structure of SME support network similar & experience gained can prove useful for other countries of Western Balkan, too

  14. Thank You! Ninko Kostovski University American College Skopje Head of Management Department kostovski@uacs.edu.mk www.kostovski.webs.com

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