1. 1 APEC Symposium on SME Strategies to Manage the impact of the Global Financial Crisis Chinese Taipei – June 8-9, 2009 SME FINANCING AT TIMES OF ECONOMIC RECESSION Salvatore Zecchini Institute for Industrial Promotion - Rome and Chairman of the OECD WPSMEE Informal Steering Group on SME and Entrepreneurship Financing

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3. 3 SMEs, especially innovatives ones, are hit harder by the current global financial crisis than other firms. More vulnerable, because they involve higher risk and weaker financial structures. Still they deserve special attention, because they are essential for long-term economic growth.

4. 4 Focus of this presentation: -Role of SMEs in economic growth -Scale of the financial problem of SMEs -Main stumbling blocks - Solutions adopted in OECD countries and suggestions

5. 5 Source, OECD-Eurostat Entrepreneurship Indicators Program, “Measuring Entrepreneurship: a digest of indicators”, 2008

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9. 9 Number of enterprises by size, EU-27, 2002-2007 Source: First Section of the Annual Report on EU Small and Medium-sized Entreprises, EIM, Zoetermeer, January 12, 2009

10. 10 Value added and employment in the non-financial business economy in old (EU15) and new (EU-12) Member States by size-class, 2007 Source: First Section of the Annual Report on EU Small and Medium-sized Entreprises, EIM, Zoetermeer, January 12, 2009

11. 11 Propensity to invest of SMEs by size class, EU-27, 2007 Source: First Section of the Annual Report on EU Small and Medium-sized Entreprises, EIM, Zoetermeer, January 12, 2009

12. 12 Sources of financing difficulties: -Cash-flow problem and profit squeeze -Credit rationing -Reduction in fundraising for equity capital, seed capital, VC investment, private equity

13. 13 SMEs are currently caught in a bind: On the one side, falling sales and slump in new orders; On the other side, liquidity shortage, higher payment delays, tighter bank credit, drying up of equity capital sources.

14. 14 Leverage of the Italian manufacturing enterprises Source: “Rapporto sulle tendenze nel sistema produttivo italiano”, Bank of Italy, November 2008

15. 15 Short term debt on total financial debt in the Italian enterprises Source: “Rapporto sulle tendenze nel sistema produttivo italiano”, Bank of Italy, November 2008

16. 16 Overview of Financial Markets FTSE 350 stock mkt indexFTSE Small Cap Index Hang Seng stock mkt index

17. 17 Source: Bloomberg

18. 18 The BALTIC INDEX Source: Bloomberg Finance L.P. 2009

19. 19 Banks with tighter lending conditions Source: EcoWin, in “Denmark National Bank”, Monetary Review, 4 th Quarter 2008.

20. 20 Demand for credit in the US Source: Federal Reserve, Senior Loan Officer Opinion Survey on Bank Lending Practices, released February 2, 2009

21. 21 In view of declining sales expectations and uncertainties on the duration of recession, it is not surprising that SMEs curtailed their bank credit demand in most countries. But there is ample evidence that small businesses in all countries are finding it harder to borrow from banks. The tightening of bank loan conditions can be seen through several indicators, such as rising spreads, widening gaps between requested funds and granted amounts, higher collateral or guarantee requirements, longer delays in loan processing and higher lending fees.

22. 22 Experienced or expected impacts of the crisis on SME and entrepreneurship financing Source: Country Reponses to the 14 January OECD WPSMEE Questionnaire on the Impact of the Global Crisis on SMEs and Entrepreneurship Financing and Credit reform Economic 2008/09. Experienced or expected impacts of the crisis on SME and entrepreneurship financing

23. 23 In such an unfavourable lending environment, SMEs have to tap alternative funding sources, such as self-financing, new equity, factoring, private equity, and venture capital.

24. 24 Global venture capital investment 2000-2008 in USD Source: VentureXpert, 2009

25. 25 Common concern of Governments at this juncture is to soften the recession impact on SMEs

26. 26 Source: OECD WPSMEE Questionnaire on the Impact of the Global Crisis on SMEs and Entrepreneurship Financing and publicly available information. Policy responses

27. 27 In the financing domain, the various measures can be grouped into three categories: working capital support; easier access to bank lending; help to maintain SMEs investment levels.

28. 28 Conclusions and Additional steps to be considered  To promote the availability and diffusion of timely information (more information on bank lending to small firms and medium-sized ones; to establish a “SME Financing Scoreboard ”)  Improve cash flow (accelerated depreciation, tax incentives, factoring, public procurement with attention to SMEs, support to R&D and innovative products)  Facilitate Access to credit (boost to credit guarantee programs, risk sharing with private lenders, credit mediators, and lending monitors)

29. 29 To foster investment (by enhancing venture capital supply, improving vc exit mkts, increasing public equity funds) To promote business services and SME engagement in the design of relevant policies

30. 30 Above all measures, there is a need to provide strong macroeconomic support to demand expansion