SMEs and entrepreneurs constitute the backbone of national economies in OECD countries and beyond. In the OECD area, they represent almost the totality of the business population and account for 60% of total employment and between 50% and 60% of value added on average. They are key to strengthening productivity, delivering more inclusive growth and adapting to megatrends such as the new industrial revolution, the changing nature of work and demographic changes.
Financing for SMEs is important at all stages of the business life cycle, in order to enable these firms to start up, develop and grow. Governments around the world have been stepping up efforts to foster a diversified financial offer for SMEs. The OECD’s annual report Financing SMEs and Entrepreneurs: An OECD Scoreboard is an important tool to help governments get their SME finance policies right. By monitoring SME access to debt, asset-based finance and external sources of equity, along with framework conditions and information on policy initiatives, it provides a solid framework and evidence base in this area.
The seventh edition of this annual publication covers 43 countries worldwide and includes data covering the 2007-2016 period. It builds on previous editions with important improvements in methodology and analysis. The study shows that the economic environment has generally improved for SMEs. In 2016, fewer SMEs went bankrupt, continuing the trend which began in 2014. In addition, B2B payment delays and non-performing loans remain low by recent standards. Nonetheless, lending is now down in a majority of countries for which data are available, in some instances due to weak demand for credit and low levels of corporate investment.
This has coincided with an emerging trend of rising volumes of financing instruments used by SMEs as alternatives to bank loans. This is the case for asset-based financing such as leasing and factoring, venture capital investments, and crowdfunding and related online marketplace activities. While these developments are welcome, many SMEs remain over-reliant on straight debt for their external financing needs. The financial crisis underscored the vulnerability of these businesses to changing conditions in the credit market. It also highlighted the limitations of bank debt, especially for innovative fast-growing firms for which equity sources of finance are often more appropriate. In addition, micro-enterprises and start-ups continue to face more financing constraints and would benefit in particular from having access to a diversified set of financing options.
The G20/OECD High-Level Principles on SME Financing call for a two-pronged approach to enhance access to traditional debt finance and enable SMEs to access a broad variety of financing sources to complement bank finance. In this respect, the OECD is supporting countries through the identification of effective approaches for implementation of the Principles.
In recent years, many new initiatives to support financial instruments, other than straight debt, have surfaced. These include the establishment or expansion of venture capital funds, the removal of regulatory barriers and the creation of tax incentives for investors in SMEs. Such measures often seek to target young firms with high growth potential, since these SMEs often encounter particular difficulties in accessing external finance. Financial support is also increasingly complemented with non-financial support.
The latest Scoreboard data suggests that these policies are starting to bear fruit. It will remain crucial to monitor these developments, the risks that they might pose, and, more generally, to better understand SME finance trends in order to underpin the development of appropriate policy responses. The Scoreboard will continue to be a vital tool and to assist policymakers in these areas.
