Brussels, 24/10/2001 (Agence Europe) - Europe's small and medium-sized enterprises (SMEs) are gradually switching from loan finance to other instruments, like equity, debt-equity combinations, leasing and guaranteed loans and equity, says a report by the European Commission entitled "Enterprises' access to finance" published on Tuesday.
Access to finance is still a major barrier for enterprises, especially high-tech and high-risk startups. The Commission report notes that loan finance is, and will remain for the foreseeable future, the most important source of external financing for European enterprises aft they have used the capital of the founder and his/her friends and family, who are usually he first financial supporters of a business. However, because of increased emphasis on shareholder value, higher competition and mergers (with the closure of branches) between financial institution, EU banks are moving away from low-margin SME lending. At the same time, the financial markets provide new opportunities for SMEs' finance through loan guarantees, hybrid debt-equity instruments, and similar such schemes. The Commission stresses that the gradual increase in the use of external equity and hybrid forms of financing will mean that the suppliers of risk capital will want to participate in the decision-making progress of the enterprises and this "implies a major change in the entrepreneurial behaviour and culture in Europe".