SME development and funding instruments
Large gaps have appeared along the funding escalator in the wake of the financial crisis.
Challenging financial conditions continue to pose a threat to the survival of entrepreneurial businesses.
Although the supply of funds has been greater in rapid-growth markets, and although there has some progress in new sources of funding, such as small-scale equity investments, in mature markets, the global situation for fund-raising remains considerably weaker than it was in 2007. To mobilize the latent energy of the small and medium enterprise (SME) sector, greater attention must be paid to strengthening the financial landscape.
Despite being key engines of economic growth, SMEs attract just a tiny proportion of overall investment for 2010 in the G20 countries. Not all SMEs are entrepreneurial, but they provide the best approximation for international comparisons of entrepreneurial funding. Overall investment in SMEs across the G20 stands at US$714b, 6.2% of the total US$11,507b spend for all other forms of investment. By far the biggest share of this comes from bank lending, at US$569b.
SME development and funding
An effective funding environment means that entrepreneurial companies must be able to access finance at every stage of their development. At each stage, there should be sources of finance available, and at least in theory, a smooth transition should be possible between forms of finance.
Of course, no two businesses are alike, and in reality, there is no idealized trajectory in which companies seamlessly move from one type of finance to another as they grow. Some may access certain types of funding and not others, and some may jump from one form of funding to another that is more typical of a later stage in the growth journey.
Access to funding continues to be one of the most significant challenges for the creation, growth and survival of SMEs, particularly innovative ones. According to a survey of 1,001 entrepreneurs conducted by Ernst & Young in 2011, almost two-thirds of respondents reported that it is difficult for entrepreneurs to access funding.
But beneath this headline figure, perceptions across the G20 vary widely from country to country. At the more positive end, almost three-quarters of respondents from Saudi Arabia think that access to funding for local entrepreneurs is easy, while almost two-thirds from China hold a similar view. China, meanwhile, has benefited from a booming VC industry, a high IPO rate and a combination of policies designed to boost entrepreneurship.
At the other end of the spectrum, few respondents from Russia, France or South Africa regard the funding situation as straightforward for entrepreneurs. The challenges that entrepreneurs face in these countries range from high levels of bureaucracy to shortages of credit in markets where dependence on bank funding is high.
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