SME Lead

Most jobs in the EU are provided for by Small and Medium Sized Enterprises (SMEs), companies of 250 employees or less. Despite having a crucial importance for future development, they very often face enormous bureaucratic hurdles and obstacles. To help European SMEs fully unlock their potential of long term sustainable growth and of more job creation, the European Commission unveiled on 25 June 2008 the Small Business Act for Europe (SBA), based on ten guiding principles and proposes policy actions to be undertaken by both the Commission and EU Member States.
1.  Who is the SBA for?

The SBA covers 23 million small and medium-sized enterprises (SMEs) which represent 99% of businesses in the European Union. SMEs are defined as economically independent companies with less than 250 employees and less than EUR 50 million annual turnover (or 43 million annual balance sheet). 

2.  Why does the European Commission focus so much on SMEs? Why are they so important?

SMEs are the lifeblood of Europe's economy. They are responsible for the majority of new jobs created in Europe and contribute to growth and prosperity.  Moreover, their capacity for innovation and flexibility in a changing business environment makes them crucial for Europe's success in the global economy. 

3.  Why do we need action at EU level?

SMEs around Europe face the same type of problems: administrative burden, difficulty to find financing and skilled labour, or to take opportunity of the Single Market. Addressing some of these problems together through a partnership between the EU and the Member States can bring considerable and tangible results. 

4.  Is the Small Business Act a real act, does it have legislative power?

The SBA uses all means of political and administrative action to put SMEs' needs in the forefront of the European policy. But it is not a real act, as there is no such legal instrument within the European Union.

The SBA consists of many different elements:
10 common principles for the Member States and the Commission, 4 legislative proposals including directives such as the late payment directive and a new European Company Statute, and policy actions such as the establishment of EU Centres in China and India or mobility programmes for nascent entrepreneurs or apprentices.

5.  What are the main actions in the SBA?

The SBA aims to promote entrepreneurship in the European society, to make legislation on EU and national level more SME-friendly ("Think Small First" principle) and to help SMEs to grow via a variety of individual policy measures (e.g. redirecting to SMEs money in the innovation, regional and research support programmes).

6.  Do you have any idea of the savings that the whole SBA will bring to companies?

As the SBA contains a large number of far reaching measures and initiatives we don't have an econometric analysis of the SBA as such but an extensive assessment of its impact on the business and social environment. Moreover, as Member States will also be involved in the process, it is not possible to predict all of the savings that are related to their potential actions. For instance, in the field of administrative burden on businesses, a 25% reduction would translate into an 1.5% increase in the EU's GDP - amounting to about EUR 150 billion. 

7.  How many jobs will be created because of the SBA?

In the last 8 years, SMEs have created more than 8 million jobs in the EU, thus they have been responsible for more than 80% of the new net job-creation. We expect the SBA to give a strong boost to job creation as it places particular emphasis on eliminating the obstacles to growth and facilitating SME's doing business both in Europe and beyond.

8.  Are there quotas for public procurement in the SBA, like in the USA? Why not?

There are no fixed SME quotas for the public procurement. Public procurement accounts for some 1800 billion Euros within the EU (16% of EU GDP), so it could be a danger to impose strict quotas as it could distort the market (the best proposal gets a contract). A recent study showed that about 42% of the value of public procurement contracts in the EU (under the EU Public Procurement directives) goes to SMEs, compared to the US quota of around 23%. We therefore believe that a better way to help SMEs would be to level the playing field for them.

9.  What are you planning to do instead of a quota in order to help SMEs access to public procurement?

We are tackling the most recurrent problems for SMEs: reducing the size of the contracts, ensuring sufficient access to information and decreasing the administrative burden of tendering to facilitate SMEs' access to public procurement. In addition we are presenting a code of best practices. 

10. Will you change the definition of SME?

No, the definition covers nearly 99.8% of the 23 million European companies and has been introduced fairly recently.

11. Are there special rules for micro-companies, with less than 10 employees?

All new legislative and administrative proposals at European and national level should be subjected to an "SME test". Whenever this impact is considered negative, the governments or institutions should consider derogations, transition periods and exemptions for SMEs in particular from information and reporting requirements. This would of course apply first and foremost to the small companies because they are suffering most from all kinds of red tape. In addition, reduced VAT rates will apply for labour intensive services often supplied by micro-enteprises.

12. Will SBA make it easier or cheaper to start up a company? How?

First of all, it should be noted that Member States are mostly in charge of the administrative and legislative regulation on this issue. The SBA calls on them to follow the example of the best performers: starting up a company should take less than a week and obtaining licenses and permits should take no more than one month. Member States should establish one-stop-shops to facilitate start-up procedures. In addition, the planned European Private Company Statute will allow entrepreneurs to start up and operate according to the same company law provisions within EU.

13. What is the new "European Private Company Statute"?

The new European Private Company Statute (SPE) will allow all entrepreneurs to start up and operate according to the same company law provisions throughout Europe. This proposal will make it cheaper and easier to engage in cross-border business activities within EU.

14. Where have the ideas for the SBA come from?

The European Commission has consulted widely with its stakeholders through a public hearing and an intensive on-line consultation with more than 500 replies. Also, the Enterprise Experience programme where European Commission officials spend one week in an SME as trainees helps staff to understand better the needs of SMEs and thus be able to address them more effectively.

15. What are you doing in order to prevent the SBA from becoming a paper tiger?

The SBA is an ambitious initiative of the Commission and needs the full support of national governments, business organisations and all other stakeholders. The European Council is expected to adopt the SBA in December 2008, at the highest political level. It is integrated into the Lisbon Partnership for Growth and Jobs. Progress will be monitored regularly.

16. What will happen now? Do the European Parliament and EU Member States have a say on this?

Both the European Parliament and the Member States have been involved in this process and will continue to be consulted on the next steps.

17. When will all of this enter into force? 

The European Summit in December 2008 is expected to adopt the SBA principles and commit to implement its actions.

18. What will you do for the financing of new companies? Is there money available?

Firstly, the financial resources of a number of EU programmes (Structural Funds, the 7th Framework Programme and the Competitiveness and Innovation Framework Programme (CIP)) will be redirected towards SMEs. Over the next 5 years, till the end of the financial planning period 2013, there should be a substantial increase in SME participation in all those programmes. Secondly the European Investment Bank Group (EIB together with EIF) is establishing a new "Microfund" (financial facility) in order to support non-bank micro-finance institutions. The EIB also plans to establish a dedicated mezzanine financing envelope for fast growing SMEs. Finally, the Commission will extend the possibilities to give state aid to SMEs and will simplify the rules in order to make them more accessible (i.e.: new "General Block Exemption Regulation").

19. Should the SBA be seen as a finalised initiative or as a process?

The SBA should be seen more as a process than a single measure. This can be illustrated in the field of cutting red tape: By the end of 2008 we will complete a complete screening of EU legislation in order to identify possible solutions to reduce the administrative burden on business. 

20. Why do you want to change the VAT rules? 

The Commission will submit a proposal to reduce the VAT tax rates on labour intensive services, which are supplied on a local basis. This should have a positive effect on a whole range of smaller businesses, such as hairdressing, catering for repair services.

Source: European Commission