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SMEs, pain-points and the future


We have embarked on a journey to explore how small and medium-sized enterprises, i.e. SMEs, or as one report calls them, Smallish Misunderstood Enterprises, are currently served and what can – if anything – be done better. Before we dig into the details, let’s start by defining what it is we mean when we say SMEs. We will then explain why we think they are so important, today more than ever, and how we see the future improve for them.


What are SMEs? The classification of companies based on size is important as many governments prioritise the growth of smaller companies as these provide the bulk of employment and usually stimulate competition and innovation.


For a company itself, knowing its category matters as there are a wide range of benefits, funds, grants and other services that SMEs can benefit from. The size of a business, even within the SME classification, also has a significant impact on what possibilities there are out there.

How do you know whether a business may be classified as an SME? In general, SMEs are companies that have less than 250 staff (“headcount”) and a turnover of less than €50m or balance sheet of less than €43m. But there are also sub-categories such as small and micro. The following table, based on the EU’s definition, summarises the categories:

SMEs are a major part of the economy

SMEs are small individually but collectively they are a major part of the economy. In fact you are likely to be in direct or indirect contact with a large number of SMEs every day as they represent 99% of all businesses in the EU. However you are likely to have only heard of a small number of them, mainly those operating in your own locality.


One reason why SMEs might be misunderstood is because there are so many of them and they are so diverse, operating across almost every business area. As a result politicians, journalists and others refer to them collectively as one group, small businesses. This makes them seem like one niche sector, which is far from reality. On the other hand large airlines or banks are frequently name-checked, and understood, at an individual level.


Because SMEs are such a large part of the economy, if there is any way to find small efficiency gains that make life easier for European SMEs, this could lead to asymmetric gains in sustainable societal growth as a whole – ultimately benefitting all of us. And this can only start with identifying if there are any areas of friction today.


SME pain points We know that business owners face a myriad of minor and major problems every day, especially so during the ongoing COVID-19 pandemic. We have chosen a small sample of some SME pain points that we think will continue to hold true after, as well as during, the pandemic.

  • Cashflow & Access to Finance is a constant headache for businesses, especially during the current crisis where payment terms are being re-negotiated or unilaterally amended. As there are two sides to every B2B relationship, one business will inevitably suffer when another business decides to pay later, even if they have good reasons for doing so. Access to working capital can make or break a business, which has been highlighted in this survey by the EU, where access to finance was identified as the #1 pressing problem by 1.8 million SMEs – representing roughly 10.3 million jobs in the EU – and that was during the good times of 2019! During the pandemic, access to finance has become one of the most important topics, which is why the European Fund for Strategic Investments have pledged to provide €8bn worth of loans to 100,000 SMEs, with the aim to solve their working capital needs. We celebrate the EFSI's focus on SMEs but recognise that working capital and, more broadly, access to finance was – and will remain – an issue before and after the pandemic.

  • Administration is taking up too much time. A study carried out in the UK, where over 1200 businesses participated, estimates that SMEs spend an average of four hours a week completing administrative and accounting tasks. This is time that could possibly be spent growing your business or with family, instead of tapping away on an excel-sheet.

  • Customer onboarding by financial institutions is tough to get through, which mostly is due to clunky onboarding processes that seek to acquire as much information about a customer as possible and can mean it takes weeks or months to open a bank account for example, as well as further questions and delays when a customer applies for a specific product such as a credit line.


How do we see the future developing? Many traditional business tools are still relevant today but could be optimised and digitised. For example we don’t see everyone suddenly moving to bitcoin and blockchain-based billing but we do see banking become more digitised and less reliant on paperwork.


There has been a significant step forward in the consumer segment where technology companies have brought financial products into the 21st century with app-based banking, the elimination of paper applications or even the need for physical bank branches. This is very welcome even if the core functionality, making payments and reading your bank statement, has not changed. However such companies have so far mainly concentrated on the consumer market and SMEs are still an under-served market when it comes to the digitalisation of financial services. We expect this to change rapidly in the coming years.


COVID-19 has been a catalyst for many other changes. We have all been surprised at how we have been able to adapt to working from home so quickly and how well cloud-based IT solutions and collaborative tools work.


However SMEs have seen mixed results when it comes to addressing the severe liquidity shortages that COVID-19 has brought. On the positive side, we have seen some quick thinking in both private and public sectors. Governments have torn up some of the rule books and dug deep to help SMEs cashflow problems. The banks and other financial institutions have reacted by trying to speed up their credit processes and being less reliant on face-to-face meetings. But this has just shifted everything to PDFs and emails. It’s still the same people asking for the same information on your business and not understanding it. And it is still taking them weeks or even months to make a decision, so the quick thinking has unfortunately just become slow acting for many. Little has changed fundamentally.


We believe faster and more efficient processing and decision-making will become increasingly demanded by SMEs and there will be significant shifts in the sector to achieve this. Especially now that we can all see how easy it is to work digitally and paper processes can be confined to the 20th century dustbin. We need to take this all the way. We believe that technology-based and data-driven solutions will be instrumental in improving future payment and working capital needs for SMEs in the very near future. What is your experience?

Do you run a business? We would love to hear you view! Send us your thoughts on blog@yoba.com


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