EU Funding Instruments for SMEs

SMEs are the vast majority of enterprises in the EU-27 and worldwide. They play an essential role in the creation of national income and the achievement of social cohesion as they contribute significantly to job creation and added value to the economy. Such ascertainment is the cornerstone for governments and public authorities to design public policies for SMEs’ strengthen and expansion. One of the main problems which SMEs often face is their limited access to finance especially in countries that have been through economic and successive crises. In the context of regional and competition policies and by using the European Structural Investment Funds, as well as EU competitive programs such as COSME and InvestEU and the Recovery and Resilience Facility, EU-27 provides several sources to member-states in order to implement supporting actions for SMEs. EU funding instruments could be divided in two main categories: (a) the widely known non-reimbursable forms of state-aid such as grants which are quite popular in regional policy and (b) financial instruments. The latter belong to public policies designed to address financial market failures to satisfy SMEs’ funding needs. They are characterized by the recycling and leverage of sources through a risk-sharing mechanism between public and private sector. Actually, they are reimbursable forms of state-aid whose purpose is to facilitate SMEs access to finance through the collaboration between public and private sector and the co-investment of sources for the provision of loans or equity to SMEs through specialized funding schemes. This chapter tries to highlight EU funding instruments for SMEs and provide input to answer a critical question of whether financial instruments help cover market failures solely or can further enhance entrepreneurship, shape markets and guide private investments to productive activities.