Small and medium-sized enterprises (SMEs) tend to prefer bank loans and overdrafts over other sources of finance like capital markets, venture capital and guarantee schemes, finding the former to be more appropriate for their needs.

The finding emerges from the first phase of an EU-funded Erasmus Plus project that aims to support SMEs in accessing the various sources of capital available. MSE Institute is the lead partner from Malta, with the other four project partners coming from Italy, Bulgaria, Cyprus, and Austria

The ultimate project objective is to create an online training tool to help SMEs be better prepared to apply for funding from the various and appropriate sources of capital in their jurisdiction.

The project team first conducted research in each of the five jurisdictions in order to assess and analyse the various types of capital available to SMEs, their level of complexity, and how easy it is to access these sources of finance.

Explaining the results, the project team said that bank overdrafts and loans offer the highest level of ease of access, whilst capital markets and venture capital are the least accessible.

“This somewhat reflects the level of complexity perceived to be associated with the various products, with bank finance being seen as least complex, and capital markets being the most complex, closely followed by venture capital.”

It continued: “The level of complexity also reflects the documentation that is required in order to apply for the respective source of capital.”

Bank finance is generally seen to be a short-term (overdraft) to medium-term (loan) source of finance, whereas capital markets and venture capital are more medium- to long-term.

Finally, the research showed that bureaucracy, financial resources required, and the processing of applications appear to present the biggest challenges to SMEs when applying for various sources of finance.

The next phase of the FAIRNESS project is to design and create the learning material that would be tailored to address the different issues raised for each finance product type, with a view to supporting SMEs in their efforts to access capital in an effective and efficient manner.