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Overcoming Information Barriers in SME Funding Market

This document discusses the challenges faced by SMEs in accessing funding and proposes solutions to address information barriers. It also highlights ongoing policy actions in the Capital Markets Union (CMU) to facilitate SME funding.

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Overcoming Information Barriers in SME Funding Market

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  1. How to address information barriers in the SME funding market? Brussels, 8 February 2017 Alexis Marchand Policy Officer, Capital Markets Union DG Financial Markets, European Commission

  2. • CMU = finance for investment & growth

  3. Financing for innovation, start-ups and non-listed companies - ongoing CMU policy actions • Crowdfunding - Monitoring development of market, coordinating regulatory approaches, ensuring appropriate clarity on application of EU rules and developing best practice • Venture capital -Setting-up large-scale pan-European VC Fund-of-Funds; revising EU VC regulation; studying tax incentives for VC and BA across Europe • Private placement -Identifying the regulatory and market barriers to the development of private placements; supporting market-led initiatives • Solvency II -Revising calibration of capital charges for insurance sector exposures to infrastructure projects and ELTIFs and examining case for revision of Solvency II calibrations for private debt/equity • Facilitating SME funding - Addressing information barriers standing between SMEs and prospective investors and lenders

  4. Facilitating SME funding by overcoming information barriers • Experience in applying for external financing is valuable if quality feedback is provided in case of refusal. There is room to improve the quality and consistency of this feedback across the EU. • SMEs are not sufficiently aware, have little understanding and have difficulties to access alternative finance. Specialist financial providers often do not have the resources to market themselves to the pool of SMEs seeking alternative finance. Matching firms to these alternative funding schemes and providers can be done via technology. • SMEs face a structural hurdle when seeking finance - the lack of reliable and readily available credit and financial information. More must be done to improve the availability of SME financial and credit information for alternative lenders and investors while preserving the principle of proportionality.

  5. Strengthening quality feedback in case of credit refusal • Article 431(4) of CRR - Possibility for SMEs to ask for feedback when they apply for a bank credit • Initiatives already implemented in some MS to strengthen feedback given to SMEs • Voluntary banking initiative ongoing to constitute a common set of high-level feedback principles at European level building on these local practices • Framework to stimulate the development of initiatives at national level to improve the quality and consistency of this feedback across the EU

  6. Mapping existing support and advisory capacities to facilitate SME alternative funding • Mapping exercise of the support and advisory capacities on alternative finance with some form of public support conducted in 1st half 2016; • Different kinds of initiatives undertaken at national level to address information barriers standing between SMEs in need of finance and alternative funding providers: • One-stop shop platforms on access to finance; • On-line navigating tools to help SMEs identify relevant publicly supported funding schemes or the most suitable private alternative finance options • Matchmaking or dating platforms connecting finance-seeking SMEs with lenders or investors; • Legislative initiatives aiming at better disseminating credit information on SMEs to alternative funding providers.

  7. Identifying successful national approaches • Organisation of a workshop on the advisory support for SME access to finance in September 2016 National initiatives to facilitate SME access to alternative finance were showcased: adoption of legislative measures, creation of funding hubs and ecosystems, development of one-stop shop and matchmaking platforms, etc. • Creation of a collaborative platform to further share best practices, facilitate exchange of information and get feedback on how best to break down information barriers on SME access to finance Identify opportunities for action at European level to support MS in need of help in their efforts to replicate successful approaches and develop their information architecture

  8. Next steps • Possible tools to support MS in developing their information architecture: • Technical assistance to be provided by the Structural Reform Support Service of the EC - demand driven process • Public procurement?        • Complement this line of actions with new measures to address information asymmetries in the SME funding markets in the revised CMU Action Plan: • On-line consultation ongoing • Targeted roundtable on access to finance • Collaborative platform on the advisory support for SME access to finance

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