SMEs call for better bank deals

Date: 02/11/1995

By Tim Jones

EUROPE'S small companies will be banging at the doors of the commercial banks in Amsterdam later this month in a bid to win themselves greater access to funding.

Representatives of the much-talked-about small- and medium-sized enterprises (SMEs), which employ 70 million people in the European Union, feel their importance is still underestimated, not least by banks.

This is the message they will give to the next meeting of Commissioner Christos Papoutsis's Round Table between the banks and the SMEs in the Dutch capital.

“We are trying to improve relations as a whole between SMEs and their banks, reduce the costs and burdens, help starts-ups, keep businesses going and try to revive the kind of loyalty banks had in the old days,” says Garry Parker, an economic specialist at the European Association of Craft and SMEs (UEAPME).

“It's the banks who are the ones that pull the plug and decide whether a business succeeds or fails,” he warns. “We want to see them provide an efficient customer service instead of dictating to businesses what they must do.”

Big businesses are able to get round this kind of problem largely because of their cash fire-power. A large company can go to its bank and threaten to transfer a major account unless it provides a guarantee on a loan or a bond, or provides the exact financial instrument it wants.

For SMEs, many of which are tiny micro-enterprises with fewer than nine employees, this option is simply not available. In many countries, an entrepreneur seeking start-up cash for a venture of 10,000 ecu or more will be forced to offer up something, usually their house, as collateral. As a result, business failures and repossessions of houses go hand in hand.

“It's a vicious circle,” says Parker. “Unless you have money in the first place, you can't borrow money.”

Papoutsis tried to address part of this problem with a communication, adopted by the European Commission last week, advocating the creation of a pan-European capital market for SMEs.

This suggests that exisiting European securities laws should allow the creation of a stock market aimed at promoting shareholdings in SMEs and improving their access to long-term equity capital.

Unlike the US, where a specialist stock market provides 400 small companies with easy access to long-term equity each year through the public offering of stock, only 40 to 80 in the EU would have similar luck.

At the Round Table, Papoutsis and the Commission services have also called for the encouragement of SME mutual funds, such as exist already in Italy.

These funds, which pool the resources of SME members, act as security for loans provided by banks so new entrepreneurs can avoid having to re-mortgage their houses. They also provide protection for members in the event of unforeseen calamity.

SMEs will also have something to say about the vexed question of cross-border payments. Only last month, EU finance ministers gave their backing to a law ensuring a minimum transfer time and a ban on double-charging for bank transfers of less than 25,000 ecu.

The SME lobbies are already talking to the relevant members of the European Parliament about amending this threshold to as high a level as possible.

Once the Round Table meeting is over, UEAPME will be encouraging the work of Socialist MEP Lyndon Harrison, who is urging Parliament to press for legislation on the right for small companies to recoup interest on overdue commercial debts.

For Papoutsis, the importance of the SMEs cannot be overstated. Introducing his communication last week, the Commissioner said: “They are the backbone of the European economy and can decisively contribute to its growth. But we must help them.”