Tag Archives: entrepreneurship

Better Access to Finance for European Enterprises

Although there has been substantial research on enterprises; information on their financing needs is quite limited. Small business entities are often viewed by financial institutions as relatively risky. In this light, the European Union (EU) continues to reaffirm its support for the small and medium sized enterprises (SMEs). As a matter of fact, the EU has drafted the ‘Small Business Act’ in 2008 and has refined it again in 2011. Another example of the EU’s commitment in this regard is conspicuous as it frequently calls for research and training schemes in the subject area of ‘SMEs’, where grants are issued under ‘Marie Curie’ and ‘Cordis FP7’ programmes.

Very often, small firms tend to find themselves in an equity gap, where it may prove quite hard to acquire capital. Although commercial banks are key providers of finance for many enterprises through the provision of loans; unsecured debt finance without collateral is very limited. Therefore, SMEs’ growth into viable investment opportunities may be severely restricted. Throughout the years, the EU has dedicated several funds to help these small (and micro) enterprises. Recently, the EU’s Enterprise and Industry Division has reiterated the importance of improving access to finance for SMEs. This interesting development has led to numerous funding schemes and to a new generation of financial instruments that support SMEs’ financing needs. Evidently, the EU has committed itself to boost its support for SMEs through various financing programmes, as illustrated in Table 1.

Table 1: EU measures that support SMEs

EU SMESource: EU (2015).

Europe is responding to the contentious issues facing SMEs by providing a mix of flexible, financial instruments under programmes, such as; the Competitiveness and Innovation Framework Programme (CIP), Progress Microfinance, the Risk Sharing Instrument (FP7), EIB loans and Structural Funds. For instance, the EU (in 2013) allocated a budget of €2.3bn specifically to bolster the “Competitiveness of Enterprises and Small and Medium-sized Enterprises” (COSME) during the period between 2014 to 2020. This initiative has been designed to support European SMEs in four key areas:

  • Developing entrepreneurship;
  • Helping SMEs access finance;
  • Supporting SMEs who wish to internationalise their business, and
  • Reducing the legislative and regulatory burden on SMEs.

Almost 220,000 SMEs profited from the Commission’s Competitiveness and Innovation Framework Programme (CIP) programme (EU, 2013). CIP has proved to be a very successful programme over the past few years. Since 2007, there were many SMEs that had benefited from CIP Funding . In fact, CIP was able to stimulate more than €15 billion of financing for SMEs, so far (EU, 2013). With a budget of €1.1 billion (CIP) has helped to mobilise over €13 billion of loans and €2.3 billion of venture capital for SMEs across Europe. Under its SME guarantee facility, CIP has helped nearly 220,000 SMEs to access loans.

These loan guarantees are required by individual entrepreneurs or  small enterprises that do not possess sufficient collateral.  Every euro that is dedicated to guarantees will in turn stimulate 30 euros in bank loans (EU, 2013).

Sources:

EU (2015) Improving the financing environment in Europe. http://ec.europa.eu/enterprise/policies/finance/financing-environment/index_en.htm accessed on the 20th January 2015.

EU (2013) Improving access to finance for SMEs: key to economic recovery. http://europa.eu/rapid/press-release_IP-13-387_en.htm?locale=FR accessed on the 20th January 2015.

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‘Crowdfunding’ for economic growth and competitiveness

crowdfunding

 

Recently the European Commission has launched a consultation programme (between the 3rd October to 31st December 2013) to explore the costs and benefits of ‘crowdfunding’ as an alternative form of finance. Contributions are sought from competent authorities, crowdfunding platforms, entrepreneurs and individuals who launched crowdfunding campaigns. Stakeholders are invited to share their views about crowdfunding opportunities and to help in the design of an optimal policy framework which will untap the potential of this new form of financing. Crowdfunding entails the collection of funds through small contributions from many parties in order to raise capital for a particular project or venture. This alternative source of financing has the potential to bridge the equity gap many start-ups face. It is hoped that this initiative stimulates entrepreneurship amid different regulatory, supervisory, fiscal and social structures of the European Union. Evidently, the European Commission is delving through extant national legal frameworks to understand better how businesses can raise their capital through such open forms of financing. Whereas some crowdfunding campaigns are local in nature, there may be others who are benefiting from easier access to financing within the single European market.

Certain safeguards may be necessary to maintain the stakeholders’ trust and engagement. The ultimate objective of the European Commission’s consultation is to gather data about the needs of market participants and to identify the areas where there is an opportunity for the sustainable growth of enterprises though debt-based or equity-based crowdfunding. The consultation covers all forms of crowdfunding; ranging from donations and rewards to financial investments. Everyone is invited to share their opinions and perceptions, including citizens who might contribute to crowdfunding campaigns and entrepreneurs who may launch such campaigns. National authorities and crowdfunding platforms are also encouraged to reply.

In a similar vein, the United States’ Securities and Exchange Commission (SEC) is currently considering crowdfunding as it was featured in “Jumpstart Our Business Startups Act” (JOBS Act). It is very likely that the proposal for crowdfunding will bring a major shift in how small U.S. companies can raise their money in the private securities market. Alternative sources of finance which are already secured via the internet include; monetary contributions in exchange for rewards, product pre-ordering, lending and / or investment. With crowdfunding now there’s the possibility that smaller businesses will be able to raise up to $1 million a year by tapping unaccredited investors. Any type of project with a promising ROI may soon opt for crowdfunding. Hopefully, it will be the micro entrepreneurs and researchers who will be capable of soliciting such ‘crowdfunding’ opportunities.

These plans can be successful only if the regulatory costs are kept as low as possible. Otherwise, small enterprises may not be intrigued by such a financing proposition. From the outset, crowdfunding may still seem a bit unclear at this stage. There are many companies including startups that can take advantage of these rules. Probably, one of the main causes of concern will be any reporting requirements for small companies to file their annual financial statements. For instance, SEC’s crowdfunding proposals may suggest certain disclosures, such as; “information about officers and directors, how proceeds from the offering will be used, and financial statements”. It transpires that the crowdfunding proposals are limiting how much money an unaccredited investor can contribute each year. The proposal says that investors with a net worth and income of less than $100,000 can contribute only $2,000 or 5 percent of their net worth or income, whichever is greater. Those with a net worth or income of more than $100,000 can contribute more. In an effort to reduce burdens on companies and portals, SEC’s plan would not explicitly force them to take steps to verify income levels and the net worth of investors in crowdfunding. At the same time, SEC would require companies using crowdfunding to release financial statements and other information that could prove costly.

No doubt that the most experienced entrepreneurs and their intermediaries will have no difficulty in meeting such crowdfunding rules and regulations. Perhaps, it is the first-time entrepreneurs who may require further support. At present the smaller businesses earning revenues (and profits) below a certain threshold are not legally obliged to provide audited financial statements. Moreover, small enterprises may not always have historical financials. This means that financial services authorities will find it quite difficult to determine how small companies are true and fair in their financial reports. According to the US proposals, the businesses who consider crowdfunding as a source of finance will have to audit their accounts.

By the end of this year the European stakeholders would have consulted about this ‘new’ source of finance. It is hoped that any discourse in this regard will translate into facilitative, soft-law measures leading to legislative action. If the crowdfunding proposals will be implemented; more capital will be unlocked for start-ups, investments and projects. This capital finance will surely help to spur economic growth and competitiveness.

More information is available here:

http://ec.europa.eu/internal_market/finances/crowdfunding/

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Economic Growth Correlates with Investment in Education

index

TimesofMalta.com

Now more than ever, today’s employees need to possess adequate skills and knowledge to enable them to perform a wider range of tasks and functions within their organisational contexts. The labour market has to become flexible and adaptable to the continuously changing market environment. Moreover, the educational institutions’ investments in curriculum development will help to provide incentives for individuals to commit resources to their careers. Many academic studies have shown that economic growth is increasingly correlated to the effectiveness of the countries’ educational policies and their related curriculum development programmes (OECD, 2012). Educators should ensure that their policies, systems and reforms contribute to the supply of well-skilled people for the labour market. Prospective students of continuous professional development programmes and of higher education courses may be new entrants (school leavers), people continuing to expand their existing knowledge and skills in their workplace or job seekers registering for employment. On the other hand, lower social capital investments can impact on a country’s economic growth prospects as well as on its productivity levels and competitiveness. This may translate in serious negative effects for the individual’s well-being as well as for the cohesiveness of society.

For instance, entrepreneurship programmes in post-secondary or tertiary institutions are usually based on multiple-skills approaches. Students who follow such courses acquire key competences in creativity, innovation as they enhance their business acumen. In addition, they usually develop their social skills, particularly if they work in groups. Students can learn how to work collaboratively in a team environment. Educators should try to adopt student-centred approaches, including case studies, active participation in cooperative learning, exercises such as role-playing, debating, and the like. In fact, assessments of entrepreneurship studies may also involve the delivery of a sales pitch and the drawing-up of a business plan. Both of these tasks can be carried out in groups of three or four students. Ideally, students should also demonstrate their written communications skills. They may be required to produce media releases which feature their unique selling proposition(s) to their chosen markets. Such methodologies may possibly entice students’ curiosity and motivation in the subject. In the process, the students will also learn how to work in tandem as they develop their interpersonal skills.

0511-0902-1815-5717_Group_of_Business_People_at_a_Think_Tank_Meeting_clipart_image.jpg 

In a similar vein, successful entrepreneurs also have to work closely with people. Perhaps, it is critical for business owners (including micro-enterprises) to foster great relationships with employees, customers, suppliers, shareholders, investors and more. It goes without saying that some individuals may exhibit higher interpersonal traits than others, but others can learn and improve upon their existing skills. As prospective entrepreneurs, the students are expected to come up with fresh, innovative ideas, and make good decisions in their projects. Arguably, creativity, problem solving and recognising opportunities in the marketplace are some of the specific skills that may be acquired. However, it is important that the students’ decisions are based on relevant market research. The entrepreneurship programme will have to provide practical skills and knowledge to enable the student to produce effective goods or services in a profitable manner. One of the learning outcomes of this subject is to help students to set their goals and to create good plans to achieve them. Afterwards, the students can proceed with the organisation, leadership and implementation of their project. The students’ multi-skills will help them leverage themselves and to achieve a competitive advantage over others.

 

The theoretical aspect of the entrepreneurship studies teaches students how to develop coherent, well thought-through business plans. The students acquire sufficient knowledge of the main functional areas of business (sales, marketing, finance, and operations). In addition, the students are taught how entrepreneurs raise their capital. They will also learn about financial projections and how to determine the break-even point of their projects.

 

Indeed, the entrepreneurship studies focus on developing the students’ potential skills. Throughout such pragmatic educational programmes, the students will have to use their abilities and talents to operate resources or to manage others with a reasonable degree of confidence and motivation.  The students who are successful in their entrepreneurship studies nurture their skills, knowledge and competences. This contribution suggests that multi-skilling approaches in education can bring increased competitiveness and productivity in the labour market.

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