An Economy that works for
people: Cohesion Policy support for small and medium-sized enterprises
As set out in the 2019- 2024 Agenda for Europe, Small and medium-sized enterprises (SMEs) are key for making the economy work for people. SMEs are the backbone of the European economy, representing some 99% of all enterprises, and employing around 100 million people. SMEs account for more than half of Europe’s GDP and are part of every value chain in its economy.
However, due to their small size, SMEs face particular challenges regarding access to finance, markets and talents. Most SMEs have to undergo in the coming years a dramatic transition towards a decarbonised, circular and digitised economy. While this offers many business opportunities and will help start-ups to emerge and grow, this transition will be challenging for SMEs in traditional sectors.
What is an SME?
The EU definition of Small and medium-sized enterprises (SMEs) is provided here. The main factors determining whether an enterprise is an SME are staff headcount and either turnover or balance sheet total. To determine whether a company falls within the SME thresholds, also a share of the staff and financial data of linked or partner enterprises has to be factored in.
The European Union supports the creation and developments of SMEs through a variety of policy instruments. EU Cohesion policy (in particular the European Regional Development Fund - ERDF) is the largest source of EU budget investment in SMEs. The overall policy context and the scale and scope of ERDF support is presented below. A separate datastory looks at the indicators used to measure the performance of SME support.
The Coronavirus Response Investment Initiative (CRII) was adopted on 1 April 2020 to mobilise cohesion policy to flexibly respond to the rapidly emerging needs in the context of the COVID-19 pandemic. The objective is to targets support to the most exposed sectors, such as healthcare, SMEs and labour markets to help the most affected territories and citizens in the Member States.
In relation to SMEs, the provisions adopted allow support to working capital, including through financial instruments, as a temporary measure to respond to the effects of the public health crisis. Accelerated procedures were applied to support the speedy reallocation of EU cohesion policy financing.
1. EU policy framework for SMEs
1. Creating a business friendly administrative and regulatory environment: At the centre of the Commission's action is the Small Business Act for Europe (SBA) that provides a comprehensive SME policy for the EU and EU countries. The SBA promotes the 'Think Small First' principle and promotes entrepreneurial spirit among European citizens. More on a business friendly environment.
2. Promoting entrepreneurship: The Commission promotes entrepreneurship through the Entrepreneurship Action Plan, supports entrepreneurship education, and provides support tools for aspiring entrepreneurs. More on promoting entrepreneurship.
3. Improving access to new markets and internationalisation: The Commission’s priority is to ensure that enterprises can rely on a business friendly environment and make the most out of cross border activities, both within the EU Single Market and outside the EU. More on SME internationalisation
4. Facilitating access to finance: Access to finance is the most pressing issue for many small enterprises. The Commission works on improving the financing environment for SMEs Besides the ESI Funds, the EU provides funding and support for SMEs under Horizon 2020, the European Fund for Strategic Investments (EFSI), and the COSME programme.
The Late Payment Directive strengthens businesses' rights to prompt payment. More on access to finance.
5. Supports SME Competitiveness and Innovation: Promoting competitiveness and innovation are key aspects of EU policy in relation to industry and enterprise, in particular for SMEs.
6. Provides key support networks and information for SMEs:
- the Your Europe Business Portal is a practical guide to doing business in Europe. It provides entrepreneurs with information and interactive services that help them expand their business abroad
- the Enterprise Europe Network helps SMEs and entrepreneurs access market information, overcome legal obstacles, and find potential business partners across Europe
- the SME Internationalisation support page provides information on foreign markets and helps European business internationalise their activities
- the single portal on Access to Finance helps SMEs find finance supported by the EU
7. Supporting start-ups and scale-ups in particular: The Commission's 'Start-up and scale-up initiative' aims to give Europe's many innovative entrepreneurs every opportunity to become world leading companies. It brings together all the possibilities that the EU already offers and adds a new focus on venture capital investment, insolvency law, taxation and more. See our media package for more details.
2. Cohesion Policy is the
largest source of EU support for SMEs
For the 2014-2020 programming period, the European Regional Development Fund (ERDF) is providing over EUR 69 billion of EU budget support to boost innovation and productivity in Europe's enterprises, with SME support predominating. This makes the ERDF the largest source of EU funds supporting enterprises of all sizes and gives it a prominent role in the EU SME policy strategy.
ERDF support to enterprises is concentrated on four key ‘thematic objectives’ (TOs):
- Increase the competitiveness of SMEs;
- Boost innovation in companies;
- Improve the use of ICT; and
- Support the shift towards a low-carbon economy.
Support is given, respecting state-aid rules, for direct financial support of growth of new enterprises, launching innovative products and services, promoting e-commerce, ensuring energy efficiency, etc., and indirectly via:
- Making regional eco-systems conducive for SME innovation, start-ups and scale-ups, including support services, incubators, clusters, infrastructures like Science and Technology Parks, Technology Centres, Digital Innovation Hubs;
- Business opportunities via public procurement;
3. Planned ERDF Investments in SMEs
In the period 2014-2020 the bulk of support for SMEs under the ESI Funds takes place under Thematic Objective 3 - "Competitiveness of SMEs". The chart below shows the total planned allocations (EU and national planned amounts) by EU country and by EU fund.
The budget planned for key SME actions shows a general stability until end 2019 at around EUR 57 billion
... with a modest increase to EUR 60 billion and some transfers between SME actions as part of the immediate COVID-19 response (includes REACT EU)
3.1 Five groups of SME actions receive ERDF financial support. How have allocations changed? How is investment progressing?
In the charts below you will find ERDF support to SMEs grouped according to five key objectives: innovation, digitisation, start-ups/entrepreneurship, eco/low carbon and culture/tourism sectors.
Under each objective we present charts showing
- The total planned investment over time;
- The latest, post-COVID-19, planned allocations;
- The planned amounts and the most recent information on investment progress (updated annually at end February).
During 2020, the existing 2014-2020 programmes are being refocussed in many cases on the immediate emergency response (subject to decisions by the national authorities). In relation to the latest planned amounts, these figures are changing weekly and it will only be towards the end of 2020 that a clearer picture will emerge of the overall reprogramming of SMEs allocations.
It is expected that the REACT-EU initiative will supplement the 2014-2020 programmes in 2021 and will focus more on the recovery phase with a refocus on long term challenges.
Check back for more updates!!
TIP: In the charts use the explore buttons in top left hand side and filters in top right hand side to explore the data.
3.1.1 Innovation in SMEs
Innovation project examples:
- SMEs in Podlaskie, Poland, awarded grants to boost research and development: link
- TecBIS boosts high-tech companies in central Portugal: link
- Partnership for 3D printing in Tampere (Finland): link
- AI:MEE - Creating long-term development with artificial intelligence: link
- R&D leads Polish firm to create innovative, energy-efficient window: link
Aggregate support to SME innovation stayed stable until end 2019 ...
... and has changed marginally (includes REACT EU)
... investment progress was variable across the different innovation actions.
3.1.2 Digitisation of SMEs
Digitalisation project examples:
- Puglia’s Living Lab matches ICT innovation with market needs (Italy): link
- Mechatronics for SMEs forms networks of German and Dutch businesses: link
- INNOVATHENS promotes and supports the local knowledge and ICT-based entrepreneurship in Greece: link
- Interreg Europe: Strengthening SME capacity to engage in Industry 4.0: link
- Interreg: Supporting Atlantic digital start-ups to go international: link
- Interreg Europe: Regional policies for competitive cybersecurity SMEs: link
Initial investment plans were cut back by end 2019
... but stabilised during the pandemic response (includes REACT EU)
Investment progress over time can also be tracked using the chart below.
3.1.3 SME start-ups, entrepreneurship and financial instruments
SME start-ups, entrepreneurship project examples:
- Helping UK SMEs start and scale up their business: link
- Starting up in Emilia-Romagna: link
- An Alsace-based entrepreneurial craft beer adventure: link
We can track the gradual increases over time in SME entrepreneurship allocations,
... including the continued increase in post-COVID-19 reallocations (includes REACT EU)
... you can also check the progress implementing those allocations.
3.1.4 Greener, low-carbon enterprises
The investment activities include measures addressing energy transition, the circular economy, climate adaptation and risk management & just transition).
Green transition examples:
- Promoting eco-design in the Baltic Sea Region: link
- Helping SMEs develop green business plans in Denmark’s capital region: link
- Project in North Jutland, Denmark helps companies adopt green business models: link
Investment support to low carbon and green transition in SMEs was reduced from 2016-2019
... but recovered somewhat in 2021 (includes REACT EU)
... while progress implementing investment plans can be explored in this chart.
3.1.5 Support to SMEs in the culture & tourism sectors has also varied over time
... with some modest increases since the COVID-19 pandemic (includes REACT EU)
.. the latest data on implementation of planned investments can be explored below.
3.2 The role of Financial Instruments
Financial instruments are increasingly used by the Member States and regions to support economic and social development through European Structural and Investment Funds (ESIF) in the 2014-2020 programming period. By the end of 2018 more than EUR 16 billion of EU resources had been invested into financial instruments (providing loans, guarantees and equity) in a number of sectors including SMEs, ‘research, development and innovation’ (RDI) and energy efficiency. It is expected that the funds committed to innovative financial instruments over the 2014-2020 period will have a direct leverage effect and will generate additional investment of EUR 40–70 billion, with an even higher multiplier effect in the real economy by attracting private investment.
Financial intermediaries including national promotional banks and institutions (NPBIs), other promotional banks and private sector financial institutions, play an important role in the implementation of such instruments across the EU.
The fi-compass provides managing authorities with support for the set-up of such financial instruments.
For more details check this data story on ESIF financial instruments: link
4. ERDF programmes set ambitious targets for SME support, aiming at supporting more than 1 million enterprises in the EU in 2014-20
Under Cohesion policy we track not only the investment financing but also key measures of the achievements of the investments (common output indicators). For instance in the 2014-2020 programmes the ERDF programmes have a target to support around 1.1 million enterprises, representing more than 4% of all enterprises in the EU. Those 1.1 million enterprises are predominantly SMEs, with a target of around 800 000 enterprises under Thematic Objective 3 - "Competitiveness of SMEs" alone.
For a more detailed presentation of the number and thematic distribution of the firms being supported check out this complimentary data story.
Find more #ESIFOpenData stories here.
We are REGIO's research, business & digital team. Contact us at: REGIO-G1-HEAD-OF-UNIT@ec.europa.eu
European Commission, Directorate-General for Regional and Urban Policy, Smart and Sustainable Growth
Text revised July 2021
- An Economy that works for people: Cohesion Policy support for small and medium-sized enterprises