Track records are patchy or short, while assets and collateral may not be big enough to underwrite credit. Management skills, not least in handling company finances, are often rudimentary. Yet administration costs for financiers may be as high for SMEs as for many larger firms. The only way to overcome this is to charge higher interest, and so risk squeezing, if not killing, the goose. Little wonder SMEs have such difficulty finding long-term credit and risk capital, even for expansion.
In short, there is a gap between small business needs and those of financiers. This was recognised in a declaration by ministers following the second OECD Ministerial Conference on SMEs in Istanbul, Turkey, in June 2004. It stated that, as well as policies “to ensure that markets can provide financing for credit-worthy SMEs”, measures were also needed to increase “the managerial and technical expertise of those intermediaries whose role is to evaluate and monitor companies with a view to matching expanding small firms with investors”.
The question is which measures and how to introduce them. To discuss this, a summit organised by the OECD Working Party on SMEs and Entrepreneurship, in co-operation with the Committee on Financial Markets, will be held at the invitation of the Brazilian Ministry of Development, Industry and Foreign Trade in Brasilia on 27-30 March 2006. Under the banner of “Better Financing for Entrepreneurship and SME Growth”, this global conference, which will be opened by President Lula, may not produce all of the answers, but will set about finding some innovative solutions to help SMEs stay on their feet.
OECD (2005), SME and Entrepreneurship Outlook, Paris
©OECD Observer No 254, March 2006