Our EIB Investment Report included an interesting finding: large firms are twice as likely as small and medium-sized enterprises (SMEs) to be innovators in Europe. This is not necessarily because large firms are more innovative by nature. In fact, it could be the opposite.
It could be that the SMEs are held back from innovating. The report showed that, indeed, innovative young firms are 50 percent more likely than other firms to be credit constrained.
“A big failure in Europe at the moment is that even if a small company has an innovative idea, it is especially hard for that company to become a large innovator,” EIB President Werner Hoyer said last year at the Financial Times-EIB Global Investment Forum. “In Europe we have large, old innovators. But we lack the Googles and Amazons. Small firms may introduce an innovative product, but they lack growth finance and, in a very stringent business environment, are unable to progress.”
Hoyer pointed out that smaller, newer firms are more likely to come up with truly radical breakthroughs, laying the foundations of completely new markets. Smaller firms also force bigger firms to make more of an effort, to stave off competition. So the contribution made by SMEs to the economy is crucial.
The EIB finances SMEs and mid-caps through banks and other intermediaries. One such project is with Komerční Banka in the Czech Republic. Part of the loan will go towards financing the rehabilitation of buildings by smaller firms to make them more energy efficient and more reliant on renewable energy sources.
In another project in Spain, our financing will go to small cafés, bars and hotels that are willing to replace their equipment with more energy-efficient and less polluting alternatives.
These are just some of the examples of how our investments in small firms not only create jobs and contribute to growth, but also contribute to climate-action goals. And it is these smaller firms that face the most obstacles when trying to find money for new investments.
This cartoon, ‘The Brood’ is our take on some of the obstacles and misconceptions SMEs face.