Financing patterns of European SMEs – an empirical taxonomy

Abstract

PrefaceSmall and medium-sized enterprises (SMEs) are often called the backbone of the European economy, contributing to job creation and economic growth. In 2013, more than 21.5m of SMEs in the European Union made for more than 99% of all non-financial enterprises, employed almost 89m people (67% of total employment), and generated 58% of total added value. However, access to finance is more difficult for SMEs than for larger enterprises, not only during the current financial and economic crisis, but also on a permanent structural basis, due to market imperfections in SME financing (see Kraemer-Eis, Lang and Gvetadze, 2015, for more details).The European Investment Fund (EIF) supports Europe's SMEs by improving their access to finance through a wide range of selected financial intermediaries. To this end, the EIF primarily designs, promotes and implements equity and debt financial instruments which specifically target SMEs. In this role, the EIF fosters EU objectives in support of entrepreneurship, growth, innovation, research and development, and employment.EIF's Research & Market Analysis team has established a research cooperation with the Chair of Management at the University of Trier. This EIF Working Paper is one result of the successful cooperation. A follow-on project, building on the findings of the presented analysis and financially supported by the EIB Institute under the Knowledge Programme, is scheduled to start soon.Even though research in SME financing has strongly increased over the recent years, the financing patterns of SMEs in Europe are still not well analysed. Previous empirical studies have shown that firm-, product-, industry-, and country-specific factors influence the financing of SMEs. However, there are only few studies with a holistic perspective taking into account the interrelationships between different financing instruments and their determinants.The research, presented in this EIF Working Paper, provides an integrative perspective of SME financing patterns by identifying and analysing in detail the use of various financing instruments by SMEs. The findings can support the design and development of SME financing instruments across Europe.We thank the researchers for their important work and the very good cooperation with the EIF. We also thank the participants of a seminar with the researchers, which took place at EIF, as well as the participants of a workshop that took place at the European Central Bank, for fruitful discussions. This EIF Working Paper takes a holistic approach to investigate SME financing patterns in Europe by performing a cluster analysis including 12,726 SMEs in 28 European countries. The results reveal that SME financing in Europe is not homogenous but that different financing patterns exist. The cluster analysis identifies six distinct SME financing types: mixed-financed SMEs, statesubsidised SMEs, debt-financed SMEs, flexible-debt-financed SMEs, trade-financed SMEs and internally-financed SMEs. These SME financing types differ according to the number of fin...

Bank debt and trade credit for SMEs in Europe: firm-, industry-, and country-level determinants

“…For example, Cosh et al (2009) examine the determinants of capital obtained from several forms of financing, such as venture capital, hire purchase or leasing, factoring, and invoice discounting. Moritz et al (2016) and Masiak et al (2017) use a cluster analysis approach and identify several SMEs' financing profiles. There are also recent studies that examine the role of crowdfunding (Ahlers et al 2015;Colombo et al 2015) and the impact of venture capital finance on a firm's financial structure (Haro-de-Rosario et al 2016).…”

“…SMEs are inclined to use multiple sources of finance (Moritz et al 2016). Trade credit can be regarded as a substitute for SMEs that cannot be financed by banks: SMEs that already have access to bank loans are less likely to seek access to trade credit and vice versa (Berger and Udell 1998).…”

New players in entrepreneurial finance and why they are there

“…Start-ups seeking financing often use several financing instruments simultaneously (Moritz et al 2016). Most existing entrepreneurial finance research focuses on single financing instruments such as VC or bank financing and does not take a holistic approach where financing instruments are regarded as complements rather than substitutes.…”

Geographies of relational coordination in venture capital firms

“…In recent years, several attempts have been made to classify the newly emerged actors in entrepreneurial finance (Block, Colombo, Cumming, & Vismara, 2018, Moritz, Block, & Heinz, 2016. This literature, however, lacks a relational conceptualization of VC.…”