Small Business Act: a European strategy for SMEs

think small first. On 12 May 2011, the European Parliament broadly supported the measures for small businessesess Act, a strategic framework implemented in 2008 by Brussels to improve the environment for European SMEs (SMEs). What has the EU done for the youngest of its entrepreneurs in almost three years?

The Small Business Act (SBA) started from an observation: SMEs are crucial to the dynamism of the European economy. These companies, which employ less than 250 people and whose turnover does not exceed 50 million euros, are 23 million within the EU, represent 99% of European companies and employ almost 70% of the private sector workforce. Without them, it is difficult to achieve the innovation and employment goals of the Europe 2020 strategy: they are crucial. The EU’s ambitions include this observation and implementation of a strategy, as Antonio Tajani, Vice-President of the European Commission and Commissioner for Industry and Entrepreneurship, points out: ” SMEs […] is the engine of our economy and must remain strong, competitive and innovative. Member States must act swiftly to ensure full implementation of the Small Business Act. »

think small first, launched by the European Commission in 2005, before adopting, together with the Member States, in December 2008 a comprehensive legislative document bringing together measures in favor of SMEs. This document takes up the spirit of the American Small Business Act of 1953, which has proven itself in terms of the dynamics of SMEs. The Small Business Act in its European version aims in particular to reduce the burden of administrative procedures for setting up and managing SMEs.

What the Small Business Act contains

Many criticized this document for not being binding. It orders a number of principles to be implemented, but without legal pressure on Member States.

  • Developing an environment conducive to entrepreneurship (promoting entrepreneurship, organizing exchanges of experience, improving education);

  • “Second Chance” policy for entrepreneurs wishing to restart after filing for bankruptcy (created by the states support schemes that limit the duration of liquidation proceedings when bankruptcy is not fraudulent);

  • Integrate the “First Small Business First” principle into all legislation;

  • Adapting public administrations to the needs of SMEs – requiring the removal of administrative barriers;

  • Modification of the instruments available to public authorities with regard to the award of public contracts and the granting of State aid;

  • Use of diversified forms of financing (eg risk capital, microcredit or mezzanine credit). Investment should encourage SMEs to engage in cross-border trade;

  • The internal market must adapt to the characteristics of SMEs and improve its visibility (the creation of a European patent would be a good example);

  • that potential for innovation, research and development SMEs need to be strengthened. Transnational coordination or community programs such as the Leonardo Da Vinci apprenticeship program are good examples;

  • “Transforming environmental challenges into opportunities”: Developing management and production methods with high environmental standards seems to be the key to intelligent growth;

  • Opening up SMEs to external markets. The aim is to support European SMEs in their entry into third country markets, in particular emerging markets. European business centers have been set up to guide this policy.

The principles are there … But that’s not all: the Small European Business Act contains a number of important legislative proposals: revision of the State aid scheme compatible with the common market, the Statute for a European Company (SPE), reduction of certain VAT rates, simplification and harmonization of invoicing rules as well as reduction of late payments.

What the Small Business Act changed

At least two goals have been reached, with support figures.

First, reduce paperwork and administrative clutter (cutting bureaucracy).

This was indeed a crucial improvement that SMEs demanded. The cost in time and money is not insignificant. The impact of the SBA has been noticeable: the time and cost associated with setting up a business has dropped remarkably. For the creation of a limited liability company (SARL), we went from a European average of 12 days and EUR 485 in 2007 to 7 days and EUR 399 in 2010 (source: European Commission).

Second example: late payments. SMEs are at much higher risk of insolvency than larger companies in the event of financial difficulties. Their desire for the 2000 directive on late payment to be amended in their favor was granted in 2009: public authorities must now pay their bills within a maximum of 30 days. This improves the cash flow for SMEs that have public contracts.

Other elements need to be credited to the Small Business Act strategy, such as improving participation in public procurement by simplifying online procedures or setting up a center for SMEs in China to help these European companies enter the Chinese market.

Based on this positive assessment from several concrete advances, the Commission relaunched the Small Business Act in a revised version of 25 February 2011, including new objectives, such as helping SMEs to contribute to an efficient economy in the use of resources. The European Parliament has just approved most of it. In a context of difficult recovery and increased international economic competition, the implementation of a European strategy is not too much.

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Image source: ec.europa.eu

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