SMEs which receive EU-guaranteed loans outperform those that don’t in areas including asset, sales and productivity growth, according to a new research report from emlyon business school and Politecnico di Milano School of Management.
The report assesses the short and long-term economic effects that EU guaranteed loans have on beneficiary firms. These loans were provided to SMEs under programs funded by the European Commission and managed by the European Investment Fund (EIF).
Fabio Bertoni and Anita Quas, professors of finance at emlyon, and Massimo G. Colombo, professor of entrepreneurship and entrepreneurial finance at Politecnico di Milano School of Management, analysed data collated on over 85,000 loans granted to 57,000 individual French SMEs between 2002 and 2016, for a total amount of EUR 4.65bn.
During the study, SMEs who received these loans were matched with a ‘twin’ firm that had not benefited from this scheme. The twin firms were almost identical to beneficiary SMEs in terms of industry, location, current and predicted growth, employment rate, size and age. These twin firms gained funding through more traditional bank loans, other forms of external investment such as venture capital, or did not receive any added funding at all.
Professor Massimo G. Colombo says, “Most banks act very conservatively. If they think a venture has any possibility of failing or being too risky, it is likely they will be very cautious in giving a loan. This means that many SMEs which are perhaps riskier ventures, but have the capacity to be successful, are unlikely to receive funding. These EU-guaranteed loans step in as a security buffer to banks, ensuring potentially profitable SMEs receive the funding they deserve.”
The study found that over the ten-year period, SMEs who received these EU-guaranteed loans outperformed those who didn’t by experiencing on average a;
- 9% additional asset growth
- 7% additional sales growth
- 8% additional employment growth
- More than 2.5% additional productivity growth
- 5.7% decrease in the likelihood of defaulting.
Professor Fabio Bertoni says, “The results are consistent with the fact that one of the biggest blocks to SMEs’ growth is a lack-of financing, and experiencing financial constraints. In fact, 30%-40% of EU SMEs cited limited funding as a very significant reason for lack of growth in an EIF survey. These loans alleviate SMEs financial constraints, easing the pressure on firms and allowing them to invest in what they deem the most important areas for growth.”
Previous research has stated that 85% of new jobs in the EU come from SME’s. The researchers suggest that it is no surprise that schemes such as these EU-guaranteed loans are beneficial to the EU in terms of job creation.
