Imprint

URBACT-Network ECO-FIN-NET

SMEs’ Access to Finance – Cities’ actions in disadvantaged urban areas

Leipzig/Brussels, June 2006

PublisherLead Partner City of Leipzig Business Development AgencyNeues Rathaus, Martin-Luther-Ring 4-604092 Leipzig, GermanyTel +49 (0)341 123 58 41, Fax +49 (0)341 123 58 25e-mail: brigitte.brueck@leipzig.de

EditorThematic Coordinator German Association for Housing, Urban and Spatial Development (DV e.V.) 47-51, Rue du Luxembourg1050 Brussels, BelgiumTel +32 (0)2 550 16 13, Fax +32 (0)2 503 56 06e-mail: s.brocks@deutscher-verband.orgwww.deutscher-verband.org

This report is the fi nal output of the URBACT-network ECO-FIN-NET: City of Leipzig (Lead Partner), German Association for Housing, Urban and Spatial Development (Thematic Coordina-tor), City of Birmingham (GB), City of Evosmos (GR), City of Gdansk (PL), City of Gera (D), City of Gijon (E), Communauté d’Agglomération Grenoble Alpes Métropole (La Métro) (F), City of Marseille (F), City of Rotterdam (NL), City of Venice (I), City of Vienna (A), City of Vilnius (LT), Association for the Development of West Athens (ASDA) (GR)

The report has been compiled with assistance from experts Silke Brocks (German Association for Housing, Urban and Spatial Development), Jeroen den Uyl (City of Amsterdam) and Patrick Fourguette (expert with GIP ADETEF - French Minis-try of Economy, Finance and Industry).

Layout: comcores, Leipzig

Contents

Executive Summary ............................................................................................................................................ 5

1 Cities’ actions in favour for SMEs ....................................................................................... 13

1.1 The ECO-FIN-NET network rationale ..................................................................................................... 14

1.1.1 Background ............................................................................................................................. 14

1.1.2 SMEs‘ as one of the main motors for economic development ................................................. 14

1.1.3 The ECO-FIN-NET’s view on businesses ...................................................................................15

1.2 SME Support – a core task for local governments .................................................................................16

1.3 SMEs’ needs and requirements .............................................................................................................16

1.4 Need of an integrated local SME strategy ............................................................................................ 18

1.4.1 Three main support pillars ...................................................................................................... 18

1.4.2 Different local contexts ............................................................................................................19

1.4.3 Strong local partnership ..........................................................................................................19

2 Fostering the SMEs’ Access to Finance by fi nancial incentives .......................................... 21

2.1 Private Financing .................................................................................................................................. 23

2.1.1 High level of risk assessed by the banks for SME loans .......................................................... 23

2.1.2 Costs of small loan applications .............................................................................................. 25

2.1.3 Lack of information .................................................................................................................. 26

2.2 Public Financial Support ....................................................................................................................... 27

2.2.1 General framework for city involvement ................................................................................. 28

2.2.2 Grants ...................................................................................................................................... 32

2.2.3 Micro-credit ............................................................................................................................. 35

2.2.4 Venture and seed capital ......................................................................................................... 40

2.3 Advisory services and training schemes .............................................................................................. 44

3 Fostering the SMEs’ Access to Finance by non-fi nancial services and network support ....45

3.1 Variety of support services .................................................................................................................. 45

3.2 Existing problems seen by the entrepreneurs ...................................................................................... 47

3.3 Challenges from a city perspective ...................................................................................................... 50

3.4 Suggestions ......................................................................................................................................... 53

4 Recommendations .............................................................................................................65

5 The ECO-FIN-NET network .................................................................................................. 74

15.1 The European Programme URBACT .......................................................................................................71

5.2 The URBACT-network ECO-FIN-NET ...................................................................................................... 72

5.2.1 Work groups / Sub themes ...................................................................................................... 72

5.2.2 Working approach .................................................................................................................... 72

5.2.3 External expertise ................................................................................................................... 73

Appendix ..................................................................................................................................75

I Partner Cities / Contact Persons .......................................................................................................... 75

II Financial SME Support ......................................................................................................................... 77

III Non-Financial SME Support ..................................................................................................................81

IV Sources ................................................................................................................................................. 85

V Partners‘ Practice Examples Questionnaire Results ............................................................................ 87

Executive Summary

The URBACT-network ECO-FIN-NET

The EU Initiative URBAN

The far-reaching structural economic changes in Europe during the past decades have had a negative effect on cities and urban areas in general. These changes are particularly apparent in the inner cities and surrounding areas, and also in the large mono-structural housing estates on the outskirts of cities – even in prosperous regions. In these deprived urban neighbourhoods the economic outlook is bad, the buildings are generally in poor structural condition and the quality of life is very low. And where these areas also suffer from high crime rates, they are frequently referred to as “social hotspots”. These signifi cant disparities in economic and social opportunities damage the attractiveness, competitiveness, social in-clusiveness and safety of cities. Thus the situation also impacts negatively on the economic growth and wealth of a city. Unless appropriate countermeasures are taken, in the medium and long term these tendencies will affect more prosperous parts of our cities or regions, since they radiate negative signals with regard to relocation and development.

In order to respond appropriately to these trends, in 1990 the European Commission launched the URBAN Pilot Projects (UPP) and in 1994 the URBAN I Community Initiative. Innovative approaches were put to the test in a sort of European experimental ground for urban regeneration. In more than ten years of its existence, using the fi eld-tested integrated development approach, the URBAN Community Initiative has contributed signifi cantly to the sustainable stabilisation and revitalisation of urban areas that are experiencing diffi culties. Measures to strengthen the

local economy, promote employment and social integration and address urban planning, infrastructure and environmental issues have signifi cantly improved the quality of life of local residents. As a result of these positive experiences and evalu-ations, the URBAN programme was carried forward in 2000 as URBAN II.

The URBACT programme

Since 2003 the European Commission has been supporting the Europe-wide exchange between cities in the fi eld of inte-grated urban development within the framework of its URBACT programme. The programme supports• the exchange of innovative ideas and approaches in the notion of „good practices“, • the improvement of methods of integrated urban development, • the preparation of political recommendations concerning urban development in the context of the EU Cohesion Policy

post-2006.

The URBACT programme focuses on all cities that have already been funded within the framework of Urban Pilot Projects (UPP) or the Community Initiatives URBAN I and/or URBAN II and have therefore been able to gain a lot of experience with integrated concepts for the regeneration and revitalisation of disadvantaged districts. Furthermore, cities from the new member states with a population of more than 20,000 are being invited to participate in the programme.

URBACT is not just a straightforward summary of the experiences of the URBAN cities but has acquired an additional dimen-sion as the result of shared discussion between various cities in different European countries and on several issues and approaches which was implemented by URBACT.

The URBACT partner cities have made a signifi cant contribution:

The cities felt that they were in debt because they were receiving URBAN funding, and they have delivered information on their experiences. They have sent representatives to working group discussions in order to set up suitable recommenda-tions and have also made a major fi nancial contribution (50% of the budget of the URBACT networks).

And they have expectations. In an integrated approach, the experiences of the other partner cities are of interest to them because they can represent added value for their own experiences. Consequently they wish this programme to be contin-ued.

The method used within URBACT consists mainly of thematic networks between partner cities, covering the main issues of integrated urban development. Within these networks the partner cities discuss comparable problems of urban revitalisa-tion with other cities from other member states, thereby establishing a knowledge base which is generally accessible. Each network deals with a specifi c topic – e.g. urban regeneration, citizen participation or economic activity.

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ECO-FIN-NET

The ECO-FIN-NET network dealt with the issue of support to small and medium-sized en-terprises (SMEs). It focused on the access of SMEs to fi nance through innovative fi nancial instruments and in particular on the access of the smallest companies in the less favoured urban areas. The network is led by the City of Leipzig in Germany and consists of 13 cities from 10 European member states.

The rationale of the ECO-FIN-NET network

Economic growth generates additional wealth which in return helps to enhance the whole area, increasing its attractiveness and image, and fi nally strengthens the commitment of the residents to their neighbourhood.

The cities have turned their attention to the SMEs located in their regions because the SMEs are one of the main motors for economic development. Over 95% of all companies in the European Union are micro, small and medium-sized enterprises, and this percentage is even higher in the disadvantaged areas. These areas are characterised by a below-average rate of entrepreneurship and this is motivating the cities to pay particular attention to all sorts of business and entrepreneurial projects – even the very smallest business projects.

Access to fi nance is an important factor for the development of SMEs. The three main stake-holders are the SMEs, the fi nancial institutions and the city. If these three stakeholders are represented as being at the points of a triangle, the measures that a city can take to support its SMEs are symbolised by four arrows as shown on the chart below:

• , between the city and the SMEs: it represents direct funding by the city.• between the city and the banks: it represents any form of city funding to

the banks.• between the city and the banks through the SMEs: it represents any form

of non fi nancial support the city can provide to the SMEs in order to comfort their position when they apply for a loan.

• between the city and the SMEs through the banks: it represents any form of support the city can provide to the banks in order to make loans to SMEs more attractive for the banks.

The ECO-FIN-NET partner cities have identifi ed the following issues:

1. The access of SMEs to fi nance is generally achieved through banks and other fi nancial institutions. Where businesses have encountered diffi culties, ECO-FIN-NET has studied the reasons for these diffi culties and suggested possible solutions with intervention by the cities.

2. For several years the cities have been devising opportunities for fi nancial support for the development of businesses and start-ups (grants, loans, etc.). ECO-FIN-NET has ques-tioned the relevance of these support instruments, in particular their adaptation to the specifi c conditions required by micro and small businesses in deprived areas.

3. Access to fi nancing instruments also requires non-fi nancial services such as business ad-visory services, training, mentoring and networking. ECO-FIN-NET has studied the serv-ices best suited to improving the access of SMEs to fi nance.

More generally, ECO-FIN-NET has paid particular attention to the possibilities of maximising public support in the form of different types of partnership with other public or private enti-ties; all the more so in the current context of dwindling public fi nancial resources, when cities are aiming to achieve more with less direct funding.

For each of these three themes, ECO-FIN-NET set up a working group with representatives from the cities that have gone through this experience. Ten meetings were organised for the working groups, and external experts such as representatives of the banks, the German Sav-ings Banks Association, entrepreneurs, micro credit and guarantee fund organisations, etc., took part in these. The working groups have been advised by two URBACT thematic experts and the German Association for Housing, Urban and Spatial Development in its role as the-matic coordinator of the ECO-FIN-NET.

The ECO-FIN-NET project ran from January 2004 until June 2006 and was divided into three main phases:

1. The partner cities presented their practical experiences regarding local support for SMEs to one another and identifi ed possible forms of “good practice”.

2. They evaluated these practices, worked out the most important potentials and obstacles and selected the most relevant elements which are deemed transferable to other cities, always bearing in mind the different national contexts and developmental stages of the participating countries: for instance, the tradition of the more strongly developed fi nan-cial market in Great Britain than on the continent leads to signifi cant differences between the fi nancial systems of the countries concerned. In some countries savings banks are involved in the local economy whilst in other countries they simply do not exist.

3. Based on these evaluations and their own practices, they developed recommendations which some of them are currently starting to implement.

Private fi nancing

The usual source of fi nance for SMEs is banks and other fi nancial institutions (e.g. microcred-it institutions). The problem arises when the lending organisations are, for understandable reasons, reluctant to fi nance some projects. These reasons are:

1. The lack of suffi cient collateral which results in an increased fi nancing risk for the lending institutions; if this increased risk were refl ected in the interest rate of a loan given to the enterprise in question, this interest rate is likely to be too high to be acceptable to the entrepreneur.

2. The high cost of loan application and processing in relation to the small amount of credit: in practice, these costs cover the work of preparation of their loan applications by the SMEs and of the risk assessment and processing by the lending institutions.

3. The lack of information or track record about the small businesses.

The members of ECO-FIN-NET have tried to address possible solutions for these problems:

• How to lower or share the risk for the banks with the small business loan applications in the disadvantaged areas?

• How to reduce the cost of the application and the processing of small loans?• How to improve the quality of information about enterprises to the level required by the

banks?

Lowering or sharing the risk

For a long time one solution to this problem has been loan guarantee funds that cover part of the risk for the lending institutions. Here the ECO-FIN-NET working group recommendations are as follows:

• The local authorities may consider making a fi nancial contribution to existing guarantee schemes, in order to guarantee loans to local businesses or to increase the guaranteed loan percentage for the small businesses in the disadvantaged area.

• They should ensure that the guarantee funds are really opened up to small businesses, i.e. make small projects “bankworthy”: they should not only be a system that facilitates the procedure for seizure of collaterals from the traditional bank clients.

• In consequence, the guarantee scheme should cover SME loans, in particular including microcredit loans.

• A guarantee scheme should be a fl exible instrument open to contributions by the local public authorities, targeted to the businesses established on (part of) their territory ac-cording to negotiable guarantee conditions.

•· Guarantee funds should be designed on a somewhat broader basis in order to diversify and spread the risks and reduce the operational costs: this means that local guarantee funds (limited to the territory of a local authority) should be avoided. This recommenda-tion does not contradict the fact that a local authority carries out specifi c measures within a specifi c territory: this authority may contribute to a bigger fund with specifi c conditions for those businesses that are located within the local authority’s area.

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City and

Public Authorities

SMEs and

Business-

Associations

Banks and

other Financial

Institutions

• The guarantee funds should be managed by specialised fi nancial institutions in order to increase the leverage ratio and lower the operational costs.

• Where the strengthening of links within a local / sectoral business community is an issue, mutual guarantee schemes should be considered.

• At the national level, counter-guarantee systems should be developed in addition to the European counter-guarantees delivered by the European Investment Fund (EIF).

Reducing the costs of small loan applications and improving the quality of information

When small businesses apply for a loan, they have to prepare a loan application which some-times includes business data, a business plan and a list of all their available securities, etc. Small loans are not assessed in the same way as large ones, but well-prepared applications are easier (and less time-consuming) for the fi nancial institutions to process.

The ECO-FIN-NET recommendation is to deliver advisory services to the applicant businesses in how to prepare their loan applications and to add such fi nancial expertise to the list of other types of expertise eligible to the (regional) advisory support schemes like other types of advisory services.

Another possibility is to also make the cost to the fi nancial institutions of processing loan ap-plications eligible for support from the existing business advisory support schemes.

The procedure for processing loan applications should be designed in such a way as to avoid duplication of work. As a fi rst step in this direction, credit check results could be communi-cated between banks and guarantee funds with the consent of the companies concerned. This cooperation with the aim of leaner and cheaper processes can be further developed and intensifi ed:

• Institutional cooperation between lending and guarantee institutions, giving enterprises the option of a one-stop application point.

• Designing lending products with a “built-in” guarantee (“exemption from liability”) which is “automatically” applied for at the same time as the loan product.

Public fi nancial support

General framework for city involvement

It seems obvious that public SME support measures have to be in line with the expectations and requirements of the businesses. As a general rule, SMEs need stable, visible and effi cient procedures. They also prefer the local level (city). For the cities, these conditions are met by partnerships. The ECO-FIN-NET recommendations are as follows:

• Stable support means sustained access to fi nancial resources. But the current trend, at least in the old member states, shows that public resources are dwindling. For the cit-ies, securing these support procedures can be achieved by partnership either with other public entities that run multi-annual programmes (regions, national level, EU Structural Funds...), or, as it is being developed in some countries, with the private sector.

• Visibility means that the support schemes have to be promoted to the SMEs. This promo-tion can usefully be achieved by business representative organisations, and the cities should organise a partnership with these organisations for this purpose.

• Effi ciency requires technical expertise that as a rule is developed by specialist institu-tions. In order to design and offer effi cient instruments, ECO-FIN-NET recommends that the cities organise a partnership with specialist fi nancial institutions.

Instruments of public fi nancial support

Instruments of public fi nancial support include grants, loans, guarantees and venture capi-tal. The ECO-FIN-NET recommendations on guarantees have already been presented in the section on “Lowering or sharing the risk”.

Grants

• Grants are a very successful support instrument for new projects that require consolida-tion of the entrepreneur’s equity: they bring more confi dence to the projects and give them access to other forms of funding.

• Grants should be considered as part of a fi nancial package aiming at making small projects bank worthy.

• In situations where there are scarce public fi nancial resources, grant funds should be re-served to the consolidation of equity for new projects, irrespective of the investments and the number of new jobs.

• Priorities may be set for grant allocation by the local authorities, but automatic sectoral support associated with specifi c investments (for instance investment in IT equipment) should be avoided, since the main priority for grants in disadvantaged areas is to pro-mote new projects (and new economic activity) and develop these in the long term.

Loans

• There is no reason for local authorities to be involved in the operation of schemes that require particular expertise, but rather what is needed is to create incentives for existing schemes so that they are more active for micro and small businesses in disadvantaged areas.

• These incentives must be negotiated in such a way that the public support can be strictly applied to the businesses concerned within the area.

• The cities can consider making a fi nancial contribution to cover the preparation and/or administration costs of these loans to small businesses.

• They can also consider making a contribution to fi nancial institutions (microcredit) in or-der to cover specifi c local costs (within the disadvantaged area that is being targeted).

• They should always negotiate with the private fi nancial institutions so that the public grants and loans are an incentive for private fi nancing (leverage effect).

Venture capital

• Local authorities should not raise unfounded expectations within the SME community by publicising the possibility of venture capital that will apply only to a very small minority of businesses, in particular in those disadvantaged areas where the vast majority of projects are in the traditional sector.

• So far as this is necessary, and if this is a requirement of local businesses (ad hoc case-by-case agreement), they could act as partners of specialist venture capital organisations. They may consider a fi nancial contribution in order to capitalise investment funds (seed and venture capital) for investments in local businesses and also/fi rst to cover the admin-istrative costs of applications processing and management.

Effi cient implementation of these instruments requires additional advisory services, training and promotion as generally offered by service providers and business representative organi-sations. ECO-FIN-NET recommends that the cities provide fi nancial support to these organi-sations for this purpose.

Non-fi nancial services and network support

Non-fi nancial services are an important complementary part of the measures taken by cities to improve the access to fi nance for SMEs. There are four main types of non-fi nancial services:

• Information / Orientation: SMEs are supplied with information about a number of aspects of their activities and entrepreneurship, such as tax regulations, how to get access to fi nance etc. Advice is given on the viability of a business idea.

• Training / Qualifi cation: Training and qualifi cation services are intended to deliver a high-er level of entrepreneurial skills in the fi elds of promotion, bookkeeping, use of IT, e-com-merce etc.

• Coaching / Mentoring: Coaching and mentoring are services where the entrepreneurs are helped by a mentor, often a retired entrepreneur with a great deal of experience. The entrepreneurs are helped to refl ect on their problems. Coaching and mentoring require a relationship of trust between the mentor and the mentee.

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• Network support: Network support is a specifi c form of service intended to set up busi-ness networks between entrepreneurs in order to create a better environment for the en-trepreneurs, opportunities for business-to-business transactions, joint advertising etc.

However, service providers are frequently faced with a whole series of obstacles:

There is a low participation rate. Many entrepreneurs do not take up the services offered to them. In an in-depth survey amongst entrepreneurs in EU member states, the following reasons were given:

• Lack of awareness of what is needed. Entrepreneurs do not know that they may require support and services.

• Diffi culties in fi nding a service provider. Entrepreneurs do not know about all the service providers that exist.

• The content of the service offered. There is often an asymmetry between the type and quality of the service as delivered and the actual requirements of the entrepreneur.

• The conditions of service delivery. Entrepreneurs are not satisfi ed with the timing and price of what is being delivered.

Based on these fi ndings, their own experience and discussions with entrepreneurs, the ECO-FIN-NET cities addressed the following questions within their working group:

How can we reach the entrepreneurs?How can we meet their demands and requirements?

The ECO-FIN-NET cities have identifi ed many methods of reaching the entrepreneurs. The guiding principles of these methods are: to reach out actively to the entrepreneurs, at the places where they can be found, by people who speak their language, by taking up a (quasi-) autonomous position in order to be as close as possible to the entrepreneur and by encourag-ing entrepreneurs to contact other entrepreneurs.

How can the service / (unity of) supply be improved?

What is the best approach to offering services to entrepreneurs? How can the work of service providers be organised?

Because in many cities the variety of service providers is very wide, the ECO-FIN-NET cities considered what their role would be in improving collaboration between these bodies. The concept of a network covering all service providers and banks and other fi nancial institutions is recommended. This could be further reinforced by developing focal points where informa-tion from all service providers is collected and if necessary can be redirected in order to be able to fulfi l the specifi c requirements of the entrepreneurs with regard to services. Further consolidation of this unit of supply is achieved by the introduction of a business pass show-ing the most important skills of the entrepreneur.

How can cooperation with fi nancial institutions be improved in order to strengthen the ef-fectiveness of non-fi nancial support services?

It is recommended that a stable and trusting relationship of cooperation be built up between banks, service providers and the cities. Such cooperation contributes to the understanding and appreciation of the quality of the services and network support delivered by service pro-viders. It creates a better picture of the entrepreneur’s skills and qualifi cations when s/he applies for a loan. As banks have certain ways of assessing the creditworthiness of an entre-preneur, the service providers must create their services in line with this. Then the banks will be better able to assess the creditworthiness of a loan application. This form of cooperation reduces the costs of information handling and risks, which means that more entrepreneurs will get access to (market) fi nance.

What is the ideal support package and variety of services and network support that is of-fered to entrepreneurs?

Despite the great variety of different requirements by so many entrepreneurs, we cannot avoid the question as to how the best service package offered to the entrepreneurs should look. ECO-FIN-NET cities considered it useful to defi ne the ideal package.

They came to the following conclusion:

• Personal skills: courses on presentation, organisation, bookkeeping etc.• Market access: services concerning market orientation, location issues, permits/regula-

tions, access to business networks etc.• Finance: guidance concerning the information required by banks and fi nancial instru-

ments of support (guarantees, grants).

Together with services in the form of consultations, network support and coaching services can contribute to all of these services mentioned above.

How can we ensure a broader-based integrative support package? What is the best way to approach this?

The ECO-FIN-NET cities know that getting access to fi nance and improving the quality of en-trepreneurs through non-fi nancial services is only part of a broader picture. These services must be rooted in a broader-based scheme.

An integrative policy (like URBAN) is necessary to enforce the effects of (non-)fi nancial sup-port for entrepreneurs. Physical renewal can result in a safer area in places where affordable premises are available, where people are trained and social inclusion measures are taken, where higher-income residents are attracted in order to increase the buying power of the area. These integrative approaches can only work when all the partners work together. In addition to the smaller circle of cities, banks and service providers, house owners, housing associations, schools, social institutions and neighbourhood residents associations are all involved.

How can we attain fi nancial resources for support services?

The ECO-FIN-NET cities are concerned about the fi nancial sustainability of (non-)fi nancial services. Apart from one or two exceptions, external funding is necessary. Over the past few years the infl uence of European programmes such as URBAN has been exceptional. As previ-ously indicated, diminishing funds for the coming budget period are causing dark clouds to appear over these services.

The cities will do their best to reduce costs and create the best conditions for the banks to supply regular market loans, but there remains a considerable need for additional (non-)fi -nancial help.

Conclusions

All the recommendations described above are based on the experiences of the ECO-FIN-NET partner cities with one general framework and two common rules:

The general framework concerns the sustainability of support systems:

It has been indicated that this goal can be achieved by a partnership with other public and private bodies. In particular, the ECO-FIN-NET partner cities wish to emphasize that the “Ac-quis URBAN” is to be integrated in the next programming period and that the appropriate measures will be integrated into EU mainstream funding.

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The two rules are:

1. Effi cient support instruments to improve the access of SMEs to fi nance are designed as a package or combination of fi nancial and non-fi nancial services that are well adapted to the requirements of small businesses.

2. Part of the cities’ decision is to take the initiative and build up partnerships between pub-lic and private entities in their environment so that they can deliver these services effi -ciently to small businesses.

The conclusions of ECO-FIN-NET regarding future support for SMEs, both fi nancial and non-fi nancial, form an important part of an integrated urban policy for the disadvantaged urban areas. The suggested measures to strengthen local economy, particularly micro and small businesses, are contributing to a signifi cant stabilisation and revitalisation of disadvantaged urban areas.

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1 Cities’ actions in favour for SMEs

Today, cities all over Europe are facing huge problems.

The far-reaching structural economic change during the last decades in Europe had nega-tive effects on cities and urban areas in gen-eral that are particularly apparent in the in-ner cities and surrounding areas, but also in the mono-structural large housing estates on the outskirts of the cities – and this even in prosperous regions. In these deprived ur-ban neighbourhoods the economic outlook is bad, generally the buildings are in a struc-turally poor condition and the quality of life is very low. And where these areas also suf-fer from high crime rates, they are frequent-ly referred to as “social hotspots”. These signifi cant disparities in economic and so-cial opportunities damage the attractive-ness, competitiveness, social inclusiveness and safety of cities. Thus the situation also impacts negatively on the economic growth and wealth of a city. Without taking appro-priate countermeasures, in the medium and long term these tendencies will affect more prosperous city regions, since they radiate negative settlement and development in-centives.

The EU Initiative URBAN

In order to respond appropriately to these trends, the European Commission launched the URBAN Pilot Projects (UPP) in 1990 and following this the URBAN I Community Initiative in 1994. In a type of European ex-perimental ground for urban regeneration, innovative approaches were put to the test. The keynote behind URBAN was to take into account all the dimensions of urban life in the context of the urban development pro-grammes and to have all the relevant play-ers participate in their implementation. Spe-cial characteristic of the programmes was their integrated, area based and concen-trated approach: Funds from various public sources as well as different competencies in urban matters are pooled and directed at a relatively small urban area subject to seri-ous problems. And the strong participation and information of local inhabitants is a key element in integrated urban development concepts.

In more than ten years of existence, the UR-BAN Community Initiative, using the fi eld-tested integrated, cross-sector and partici-pative development approach, contributed signifi cantly to the sustainable stabilisation and revitalisation of urban areas in diffi cul-ties. Measures to strengthen local economy, to promote employment and social integra-tion as well as to address urban planning, infrastructure and environmental issues signifi cantly improved the quality of life of local inhabitants. Due to these good experi-ences and evaluations, the programme UR-BAN was continued in 2000 as URBAN II.

The URBACT programme

Taking into consideration the successes of U.P.P. and URBAN, the European Com-mission launched in 2003 the programme URBACT. With this programme, the Europe wide exchange of cities in the fi eld of inte-grated urban development is supported. The programme serves:

• the exchange of innovative ideas and approaches in the notion of “good prac-tices“,

• the improvement of methods for an inte-grated urban development,

• the preparation of political recommen-dations concerning urban development in the context of the EU Cohesion Policy post-2006.

The URBACT programme focuses on all cit-ies that have already been funded within the framework of Urban Pilot Projects (UPP) or the Community Initiatives URBAN I and/or URBAN II and have therefore been able to gain a lot of experience with integrated con-cepts for the regeneration and revitalisation of disadvantaged districts. Furthermore, cities from the new member states with a population of more than 20,000 are being invited to participate in the programme.

URBACT is not just a straightforward sum-mary of the URBAN cities’ experiences, but has acquired an additional dimension as the result of shared discussion between various cities and on several issues and approach-es. URBACT materialised this additional di-mension.

The URBACT partner cities have brought a signifi cant contribution:

The cities felt in debt for receiving URBAN funding and they have delivered information on their experience. They sent representa-tives in work group discussions to prepare

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well adapted recommendations. They also contributed fi nancially to an important part (50% of the URBACT networks‘ budget).

And they have expectations. In an integrated approach, the experiences of the other part-ner cities are of interest for them because they may give an added value to their own experiences. Consequently, they wish this programme to be continued.

The method used in URBACT consists main-ly in partner cities’ thematic networks that cover the main issues of integrated urban development. In these networks, the part-ner cities discuss comparable problems concerning urban revitalisation with other cities of other member States and thereby establish a generally accessible knowledge base. Each network is dealing with a specif-ic topic, such as urban regeneration, citizen participation or economic activity.

1.1 The ECO-FIN-NET network rationale

Since the development of local micro, small and medium sized enterprises (SMEs) plays an important role regarding integrated strategies, the network ECO-FIN-NET has been established. It covered the issue of the support of SMEs and focussed on the access to fi nance for SMEs, and particularly the smallest ones, in the less favoured urban areas with innovative fi nancial instruments. 13 cities in 10 European member states, led by the City of Leipzig, Germany, constitute this network.

1.1.1 Background

One of the main goals of the European Agenda, namely increasing growth, com-petitiveness and innovation, has been es-pecially promoted by the U.P.P. and URBAN programmes on the local level. Contrary to most national or regional approaches to ur-ban regeneration, the URBAN programmes place clear emphasis on economic develop-ment. Many cities launched special funding schemes for SMEs through which grants to existing businesses and start-ups are pro-vided for establishing, expanding, modern-ising their business premises or safe-guard-ing their business location. The local econ-omy is also supported through targeted ad-vice and services, the creation of business networks, the establishment of technology, start-up and trade centres as well as city (district) marketing or shopping street man-agement.

There is a fi rm belief that the respective measures not only strengthen local entre-preneurship, but also revitalise the econom-ic and social situation of the districts. This in turn helps to upgrade the whole neighbour-hood, increases the attractiveness and im-age and strengthens the commitment of the inhabitants to their neighbourhood, which fi nally leads to an improvement in the qual-ity of life.

1.1.2 SMEs as one of the main motors for economic development

The cities have therefore put their attention on the SMEs located on their territory be-cause the SMEs are one of the main motor for economic development. Micro, small and medium-sized enterprises represent more than 95% of all enterprises in the European Union and this percentage is even higher in the less favoured areas. These areas are

14

1

The ECO-FIN-NET network

15

To simplify the reading of

this report , the general term

SME is used in the follow-

ing, emphasizing that this

contains for the ECO-FIN-NET

also and specifi cally the

micro businesses.

characterised by a smaller rate of entrepre-neurship than the average and this moti-vates the cities to pay particular attention to all sorts of businesses and entrepreneur-ial projects, even the smallest businesses’ projects. Assistance to SMEs is one vital el-ement to improve the local economy and to create new opportunities in disadvantaged areas. The ECO-FIN-NET focuses on this spe-cifi c dimension.

Micro, small and medium-sized enterprises are playing a socially and economically ma-jor role, not only at local level:

• SMEs are a necessity for a diversifi ed economy: The growth of SMEs is vital for a diversifi ed economy. A great va-riety implies a necessary adaptability of the economy. Many small fi rms can more easily adapt to new chances and challenges. There is a tendency in most European countries that on the one hand large enterprises decrease and on the other hand SMEs increase in numbers and thereby creating more jobs than large businesses.

• SMEs are mainly contributing to equal opportunities: SMEs give also the op-portunity for a city to benefi t optimally of the diversity of the population, includ-ing ethnic minorities. The creation of a sound environment where start-ups can breed and grow is then a relevant part of the policy. The reasons for such a policy lay in the objective of poverty alleviation and empowerment of certain groups in deprived areas.

• SMEs are mainly contributing to upgrad-ing disadvantaged neighbourhoods: SMEs play an important role for the socio-economic stabilisation, the vital structure and function of urban quarters. They provide inhabitants with goods and services and create or secure jobs that are well embedded in the neigh-bourhood. Apart from the vital and ad-equate availability and use of premises, reasonable height of rent levels – often combined with a broader integrated ap-proach of urban regeneration and renew-al, the quality of the entrepreneurs and their possibilities to develop are crucial. This softer side of governmental concern for SMEs is often combined with specifi c targeted measures to uplift the skills of the entrepreneurs. This must lead in the end to a better access of entrepreneurs to fi nance in order to develop their enter-prise in the right direction.

1.1.3 The ECO-FIN-NET’s view on busines-ses

The term of business should be accepted in a broad sense in terms of ownership status (private, public, social economy) and size (big, small, micro, self employed). Very often in less favoured areas it consists in project ideas that some individuals think of implementing to generate some form of income.

The offi cial term used by the European Com-mission is “Micro, Small and Medium Sized Enterprises (SMEs)”. Micro enterprises have less than ten employees and a turnover of maximum two million Euro per year. Small enterprises are defi ned as enterprises with less than 50 employees and an annual turn-over of maximum ten million Euro, whereas medium-sized enterprises have up to 250 employees with a turnover of maximum 50 million Euro per year.

The ECO-FIN-NET rather concentrates its re-fl ection on the micro and small businesses – either formal enterprises or individual projects – as these projects form the biggest part of the local economy in disadvantaged urban areas. Besides, the ECO-FIN-NET part-ners see the support of these businesses as part of their local urban policy. This explains why in some cases the support of a specifi c entrepreneur can make sense for a local au-thority – e.g. in contrary to a fi nancial insti-tution – as its support is seen from a differ-ent angle.

200 km

Evosmos

Gera

GermanHousing

Association

Vilnius

Gdansk

Marseille

Grenoble

Rotterdam

Venezia

Wien

Birmingham

Gijon

LEIPZIG

ASDAASDA

Evosmos

Gera

GermanHousing

Association

Vilnius

Gdansk

Marseille

Grenoble

Rotterdam

Venezia

Wien

Birmingham

Gijon

LEIPZIG

1.2 SME Support – a core task for local governments

As SMEs are contributing to create eco-nomic wealth and growth, the care for SMEs becomes a core task for local governments. And particularly micro and small businesses also expect support services at local level. They prefer that services be delivered to them at local level.1 This can be explained by the fact that the normal environment small businesses are familiar with, is the lo-cal level. This is the level they are naturally in contact with. And it is convenient to have a service provider nearby.

So, cities can do and have to do something in favour for their local businesses. The dis-advantages especially small and micro busi-nesses in derelict areas are facing, call for compensation, which justifi es special pub-lic support. Local authorities have to take action to develop economic activity in the distressed parts of their territory, to render those areas more attractive and to make business opportunities easier to develop.

But the general characteristics of the less favoured areas are that market conditions are not prevalent, and the few projects that may have a local economic impact should have a chance to develop. The fact that market economy conditions are not fully prevalent in these areas, in other terms, the fact that there is a need to compensate the development gap between these areas and other more developed areas, gives ad-ditional legitimacy for public support. This means that the public authorities in charge of these areas have no other choice than providing some form of support for these businesses/projects.

The economic development support should help to activate endogenous potentials, but also attract new businesses from outside. The geographic perspective of local busi-ness promotion should therefore not be lim-ited to the deprived quarter and the small and micro businesses but also show a wider urban or regional focus, as for some branch-es and enterprises the local markets are too limited. Service providers should bear this information in mind very carefully as if, for obvious reasons of critical mass effect or economies of scale, some services need to be designed at regional or national level, they should be delivered at local level for the small businesses to be fully receptive to them (DG Enterprises 2002a).

1.3 SMEs’ needs and requirements

It seems obvious that successful support services should be tailored to their end us-ers, especially the smallest businesses since larger enterprises have a greater capac-ity of adaptation. What are the businesses’ expectations towards local SME support? What are their main concerns?2

Access to fi nance is a very important issue.

One of the main concerns of SMEs is their access to fi nance. All businesses require ac-cess to fi nance for:

• Starting an activity: starting capital is re-quired.

• Financing business growth: investments in premises, equipment, technology, re-search and development, prospecting new markets. All these activities need direct fi nancing.

• Working capital to fi nance the gap be-tween the dates of payments of the purchased goods and services, staff and other costs and the customers’ pay-ments.

• Business transfers.

Without fi nance SMEs have no or very few chances to start up in the fi rst phase, to grow and to adapt to future prospects. In this sense, the access to fi nance should not be hindered in any way. It is characteristic for micro and small enterprises that they of-ten start their business with own savings or with private money received from family or friends. But there are also many entrepre-neurs who need external fi nance. And ide-ally, those SMEs who need external fi nance should always get access to it (see fi gure 1).

But this ideal picture is of course not reality. Access to fi nance is not only one important concern mentioned by entrepreneurs, but also one frequently mentioned problem by small and micro businesses. Reality shows that for small and micro businesses access to external fi nance is often inadequate. Financial institutions may be reluctant to fi nancially assist micro and small entrepre-neurs in disadvantaged neighbourhoods, for understandable reasons.

Financial institutions distinguish between “bankable” and “non-bankable” SMEs (see fi gure 23). Bankable SMEs receive fi nancial means/credits by fi nancial institutions, the ‘non-bankable’ do not.

‘Non-bankable’ means that these SMEs are excluded from access to fi nance due to the following main reasons: 1. The high risk and consequently often

a low return activity for credit institu-tions;

2. The high transaction and handling/op-erational costs for credit institutions;

3. Unavailable or asymmetric information for both parties – the SMEs and the cred-it institutions and thus a low trust rela-tion.

These general obstacles hampering the SMEs’ access to fi nance were identifi ed by the ECO-FIN-NET partners in discussion with several European bank representatives.

In addition to this, one can say that these obstacles are partly aggravated by the fol-lowing circumstances:

• the Basel II rulings which banks must submit themselves to4;

• certain traditions or cultural differences for certain groups of entrepreneurs and banks;

• lack of fi nancial culture of small entre-preneurs;

• lack of suffi cient loan collateral;• problems with mortgages, especially

when land or building property is not clarifi ed;

• low quality of business plan;• poor project estimated profi tability• and high interest rates, especially for

small loans when interests include ad-ministration loan costs.

Figure 4:

Financial and non-fi nancial support forms the basis for fostering the SMEs’ access to fi nance.

To overcome this gap, public authorities at all levels (local, regional and national gov-ernments), NGOs (like Chamber of Com-merce and other societal initiatives) as well as fi nancial institutions have undertaken numerous measures and established sup-port instruments. The ECO-FIN-NET project addressed all types of fi nancial incentives and non-fi nancial services (such as network support) that are aimed at tackling the prob-lem of “non-bankability”. Figure 3 illustrates this approach. Financial incentives and non-fi nancial services are existent for both the bankable and non-bankable SMEs. By these measures, one strives to lower the barrier between bankable and non-bankable SMEs, thus to increase the number of bankable SMEs and to reduce the non-bankable ones (see fi gure 3 and 4).

There are two actors – the fi nancial insti-tutions and the (local) public authorities – who have to act in favour of and in coop-eration with SMEs. The ECO-FIN-NET as a network of thirteen cities especially consid-ers the perspective of a local authority and analyses their opportunities to assist local entrepreneurs.

16

1Figure 1:

1 The small businesses’ expec-

tations have been assessed

by a survey called ‘Support

Services for Micro, Small and

Sole Proprietor’s Businesses’

fi nanced by the DG Enterprises

of the European Commission.

The survey has been con-

ducted in 2001 by the Austrian

Institute for Small Business

Research (IfGH) on a sample

of 1200 small and mi-cro-

businesses from all sectors

of activities in the 15 Member

States + Norway.

2 The survey indicates that more

than two third of the inter-

viewed small businesses (67%

in the EU) would expect serv-

ices to be delivered to them

preferably at local level, the re-

gional level coming 2nd (50%),

while the national and Euro-

pean levels come much lower

(DG Enterprises 2002a-f).

3 The graphical distinction be-

tween bankable and non bank-

able SMEs does not illustrate

the real percentage.

17

4 The latest Basel Capital Accord

will result in profound changes

in the strategies of credit in-

stitutions. For the fi rst time,

not only costs and profi ts, but

also risk will be used as a core

element in credit calculation

using supervisory regulations

that have been agreed on in

an international context. SMEs

in a number of countries have

expressed concerns about the

impact that Basel II could have

on them, particularly in terms

of access to and the cost of

credits. The capital require-

ments that Basel II is launch-

ing are one of the factors that

can affect the availability and

cost of lending to (and other

forms of fi nancing of) SMEs.

Figure 2:

Figure 3:

Idea

l Sit

uati

on

100% Bankable SMEs

Fina

ncia

l Inc

enti

ves

Bankable SMEs

Non bankable SMEs

Ser

vice

s /

Net

wor

k S

uppo

rt

Exis

ting

Sit

uati

on

Bankable SMEs

Non bankable SMEs

Bankable

Non-bank-able

projectBankable

Non-bankable

Post-investment

advice

Credit repaymen

New project...

Credit / other

Credit / other

Project idea

Pre-investment

advice

Realisa-tion of the

Project

Public

Financial Institution

1.4 Need of an integrated lo-cal SME strategy

1.4.1 Three main support pillars

In order to solve the various problems that SMEs are facing, the ECO-FIN-NET empha-sizes that the future SME Support Policy must be based on three pillars which at the end form one integrated and consistent support package for the local economy. For each of these three themes, ECO-FIN-NET set up a work group with experienced cities’ representatives and external expertise:

1 Private Financial Support Facilities for SMEs

The usual source of external fi nance for businesses is banks and other fi nancial in-stitutions. SMEs direct themselves fi rst to banks when they need external fi nance. But as the allocation of credits to SMEs involves inherently a high risk of failure, often a low return activity and high handling costs, banks are often very reluctant to fi nancially assist SMEs. Cities have the possibility to help solve these problems.

Work group 1 of the ECO-FIN-NET discussed and developed new approaches on how lo-cal authorities can face these obstacles and how they can foster the SMEs’ Access to Fi-nance (see chapter 2.1).

2 Public SME Support

For several years, the cities have designed fi nancial support for the development of businesses and start-ups (grants, loans etc.). Today there are already various SME support schemes at a local level operating – directly or indirectly – with EU-funding. But with regard to the enlargement of the European Union and the lack of visibility for the Structural Policy from 2007 on, cit-ies are confronted with new challenges, as especially EU-funds will – at least for the former 15 member states – not increase in the future. Thus, it will become more and more crucial for cities to search for other in-novative ways and approaches for support-ing SMEs. Instead of direct public subsidies, the take-up of private fi nancial tools and a strong local partnership between public organisations and fi nancial institutions are more and more needed.

The work group 2 of the ECO-FIN-NET has questioned the relevance of public support instruments, in particular their adaptation

to the specifi c conditions required by micro and small businesses in the less favoured areas. Besides, the partners searched for ways and strategies on how public fi nan-cial means for SME support can be used in a more effi cient and effective way and how the expectations of SMEs towards public sector funds can be met, even in times of di-minishing public means (see chapter 2.2).

3 SME Support Services / SME-networks

In addition to the fi nancial support of SMEs, cities are in many ways in charge of or in-volved in delivering non-fi nancial services and network support to SMEs. These are an important part of local SME Support Policy throughout Europe.

These services often include the organisa-tion of network support or the offer of coach-ing, mentoring or other advisory services. By increasing the “bankability” of entre-preneurs, those non-fi nancial services can have a positive leverage effect for external fi nance and improve the SMEs’ access to fi -nance. Besides, they constitute widespread instruments to create generally a positive environment for businesses.

The work group 3 of the ECO-FIN-NET worked out the main challenges as well as success factors of those support services and stud-ied the services best targeted at improving SMEs’ access to fi nance (see chapter 3).

More generally, ECO-FIN-NET paid particular attention to the possibilities of maximising the public support impact by various forms of partnership with other public or private entities; all the more in the current context of dwindling public fi nancial resources, when the cities aim at doing more with less direct funding.

1.4.2 Different local contexts

Besides these three pillars, different con-texts have to be kept in mind whilst look-ing at the ECO-FIN-NET cities’ approaches. SME Support Policy must always respect the local conditions and circumstances un-der which a local authority acts. Firstly, the national, regional and local frameworks are differing much. For instance, the tradition of the more developed fi nancial market in Great Britain than on the continent causes signifi cant differences between the fi nan-cial systems of the concerned countries. In some countries savings banks are involved in local economy whilst they simply do not exist in other countries. These differences

could not be analysed in depth by the ECO-FIN-NET. Therefore, the recommendations drawn in this report are put in a rather general context.

Secondly, there are different types and situ-ations of so called less favoured urban ar-eas. Two main situations have been identi-fi ed by the partner cities:

• Specifi c disadvantaged neighbourhoods located in developed areas (so called “pockets of poverty”) which can be ei-ther in the centre or in the suburbs of the city. Here, there is the necessity for the cities to support even very small individ-ual entrepreneurial projects.

• All the territory of the city is included in an area lagging behind in development (e.g. classifi ed by the European Union as “objective 1”-area) with the main is-sue being access to mainstream support for all the projects including the smallest ones. Unfortunately, the same situation applies in some former objective 1-areas with the additional constraint of dwin-dling fi nancial EU support.

The ECO-FIN-NET underlines that these dif-ferences may imply different approaches to the SME support, the main consequence of which is that in the latter case very small projects (individual entrepreneurs) may not be considered with the same care/attention as in the “pockets of poverty”.

1.4.3 Strong local partnership

In order to face the existing barriers, inte-grated and consistent packages of fi nancial and non-fi nancial support are necessary. Only integrated and coordinated strategies make measures most effective. Besides, every target group should be offered the service that is appropriate for their situa-tion. Those integrated (fi nancial) packages targeted at the specifi c needs of the entre-preneurs can only be offered by a strong and trustful local partnership of different local actors – the banks, the local authority, the Chambers and business associations, the service providers etc. and the SMEs them-selves. They all have to cooperate in order to comfort existing successful schemes and to take over their respective responsibility regarding SME Support.

1

19

A strong and trustful partner-

ship of the local authority,

the banks, the Chambers and

business associations, the

service providers and the

SMEs is needed at local level.

ECO-FIN-NET Partners

Marseille 2006

18

Figure 5:

Three work groups of the

ECO-FIN-NET

WG 1 Private Financial

Support Facilities

for SMEs

Chapter 2.1

WG 2 Public SME Support

Chapter 2.2

WG 3 SME Support Serv-

ices / SME-networks

Chapter 3

2020

2

21

2

21

2

21

2 Fostering the SMEs’ Access to Finance by fi nancial incentives

As the English say, the natural way for small businesses to have access to fi nance is with the three “Fs”: “family, friends and fools”. Unfortunately, this resource is not always suffi cient and access to external fi nance is done by the banks and other fi nancial in-stitutions. But in the less favoured areas, the banks may be reluctant to take commit-ments with entrepreneurs who operate in a diffi cult environment.

On the other hand, in these disadvantaged areas, in order to create wealth for the lo-cal population, no opportunity of business development should be neglected and, if only viable economic development projects should be given a chance to develop, the concept of viability is probably made more fl exible in these areas. As a consequence the projects should be considered with even more care than in other more developed ar-eas, and the public authorities have the ob-ligation to give some incentives to compen-sate for the banks’ possible reluctance.

Among the various public authorities, the local ones, the cities are those that are most accepted (legitimate) by the small busi-nesses.

Of course before imagining any form of di-rect support to their businesses, they should make sure that their general environment is “small business friendly”, which implies at least:

• adequate local taxes, in particular with regard to the neighbouring municipali-ties,

• a good information on the local business community and its expectations: this is the role of the business observatories,

• a possibility of dialogue with the busi-nesses through their representative bodies: this can be problematic in the less favoured areas as it is indicated in chapter 2.2.1.

The cities can also envisage direct support to the businesses located on their territory. The main stakeholders involved in SMEs’ access to fi nance are:

• the SMEs themselves with their business associations,

• the banks and other fi nancial institu-tions,

• and the public authorities including the cities at local level.

And, in order to describe the possible ac-tions a city can develop to support their SME community, the ECO-FIN-NET network imagined the concept of a triangle, the three apexes of which are the involved stakehold-ers: the SMEs and their associations, the fi nancial institutions and the city.

The axes between the apexes illustrate the various possibilities of action:

In order to develop the SMEs’ access to fi -nance, the cities theoretically have four possibilities illustrated by the four coloured arrows:

• , between the city and the SMEs: it represents direct funding by the city.

• between the city and the banks: it represents any form of city funding to the banks.

• between the city and the banks through the SMEs: it repre-sents any form of non fi nancial support the city can provide to the SMEs in order to comfort their position when they ap-ply for a loan.

• between the city and the SMEs through the banks: it repre-sents any form of support the city can provide to the banks in order to make loans to SMEs more attractive for the banks.

The next chapter gives a detailed descrip-tion of the instruments that are implement-ed actually, with recommendations on how to make them more consistent for the small businesses in the less favoured areas with particular attention to the smallest busi-nesses. But at this stage it may be interest-ing to observe that these theoretical arrows indeed correspond to some forms of reality

City and

Public Authorities

SMEs and

Business-Associations

Banks and other

Financial Institutions

22 23

2

with support instruments that have already been implemented by the ECO-FIN-NET part-ner cities:

Direct relation between the city and the SMEs

These are the instruments with which the cities provide direct funding to their SMEs: it generally consists in grants or loans that can be specifi cally targeted at some busi-nesses and/or in some specifi c areas. In practice, grants are more widely used than direct loans, since the latter require specifi c expertise, longer management procedures and can be contracted with specialised in-stitutions (see next arrow).

Examples:

City of Birmingham: Business Investment

Scheme grants + loans + venture capital),

Enterprise City scheme providing targeted

entrepreneurs with a comprehensive package of

coaching, funding and services, West Midlands

Inclusive Fund targeted at specifi c ethnic and

religious entrepreneurs

City of Gera: grant scheme

City of Gijón: Equal micro credits, entrepreneur

micro credit scheme

City of Leipzig: grant scheme

City of Marseille: public micro credit scheme

with the “platform for local initiative” being a

member of the national network of local micro

credit funds France Initiative Réseau,

City of Vienna: grant schemes for start-ups,

founders’ bonus, for retail shops, for infra-

structure support and for internationalisation

City of Vilnius: grant schemes

Relation between the public author-ity and the bank/fi nancial institution

The cities can provide funding to fi nancial institutions for loans to the local business-es: in some cases the funding is entirely (or almost) public and directed to the business-es as in the case of public micro credit funds funded by the city (see previous arrow), but in some cases, a partnership is developed with private donors or investors to create micro credit funds. The city can contribute to the fund capitalisation and/or to their operational costs, for the business projects located in the areas targeted by the cities.

They also provide funding to loan guarantee schemes (capitalisation and/or operational costs) or venture capital:

Examples:

The City of Birmingham participating in the

capital of the micro credit Arrow Fund

The City of Gdańsk participating in the Regional

Guarantee Scheme

The City of Gijon participating in a micro credit

scheme with the savings banks Caixa

The City of Leipzig with the “concept venture

capital light” with a city subsidy to the venture

capital institution (savings bank) for small

projects

The City of Marseille: public micro credit

scheme, initiated by the City, co-funded by

other public bodies (regional and national) and

private donors (large businesses)

The City of Vienna granting loans in coopera-

tion with the Economic Chamber

City actions directed to the banks through the SMEs

This concerns non-fi nancial support to en-trepreneurs in order to facilitate their access to fi nance with fi nancial institutions (gen-erally for loans). In this respect, two main lines are considered:

a) Pre-investment support is important for the investment readiness of a business proposal. One has to check if a project is viable before fi nancing or funding it.

b) But also post-investment support is very important in order to make sure that the investment remains viable and to ensure that the funding revolves.

Examples:

Advisory support services for the preparation

of loan applications or business plans were

presented by the Cities of Evosmos, Leipzig,

Marseille, Vienna and Vilnius.

The City of Gijon: business network called

“Nautical Station”

The City of Grenoble is partner in the ECTI-or-

ganisation that delivers mentoring services

The City of Leipzig and Gera create business

networks.

The City of Marseille engaged the SAP project

aiming to enforce project ideas to become a real

business idea

The City of Rotterdam-Delfshaven: Mentorraad-

project offering mentoring services

The City of Rotterdam-Delfshaven: voucher

system

The City of Vienna initiated the “Grätzelman-

agement”

West Athens: reached the entrepreneurs effec-

tively by ITC-improvement projects

City actions directed to the SMEs through the banks

These actions are widely used: they concern the loan guarantee schemes and the type of subsidy that has been indicated in the previ-ous chapter. They are described in detail in chapter 2.2.

Examples:

Regional Guarantee Fund with participation of

the city: Gdańsk

Very often SME loan guarantee schemes are op-

erated at regional level as in France, Germany

or Poland or at national level as the national

bank for SMEs BDPME/SOFARIS in France or the

national guarantee scheme in Austria.

2.1 Private Financing

As it has been indicated in the previous chapter, the usual source of external fi nance for businesses is banks and other fi nancial institutions (micro credit institutions). The problem rises when the lending organisa-tions are, for understandable reasons, re-luctant to fi nance some projects. These rea-sons are:

1. The lack of suffi cient collateral which results in an increased fi nancing risk for the lending institutions; if this increased risk is refl ected in the interest rate of a loan given to the enterprise in question, this interest rate is likely to be too high to be accepted by the entrepreneur.

2. The high cost of loan application and processing in relation to the small amount of credit: in practice, these costs cover the work of preparing the loan ap-plications by the SMEs and of the risk assessment and processing by the lend-ing institutions. The former are directly supported by the SMEs, the latter are normally covered by the interests paid by the debtors, in this case the SMEs (charged indirectly). For very small projects, implying small amounts of funding and thus small loans, the entre-preneurs often have a limited fi nancial culture, which results in poor loan appli-cation preparation and additional costs for the lending institutions. Charging these costs through the loan interests’ results in too high rates to be commer-cially acceptable or even illegal rates in countries where the interest rates are capped by law.

3. The lack of information or track record with the small businesses: this informa-tion is the basis for the fi nancial institu-tions to take decisions on business loan applications. Very often in the small businesses, the management informa-tion system is rather primitive and it is not the main priority for the entrepre-neur. This lack of information reinforces the high risk assessment indicated in chapter 1.

The ECO-FIN-NET participants have tried to address possible solutions for these prob-lems:

• How to lower or share the risk for the banks with the small business loan ap-plications in the less favoured areas?

• How to reduce the cost of the application and processing for small loans?

• How to improve the quality of the infor-mation on enterprises to the level re-quired by the banks in the loan applica-tion process without putting a too heavy administrative burden on the small busi-nesses that cannot afford a well staffed administrative structure?

2.1.1 High level of risk assessed by the banks for SME loans

Guarantee funds are an effi cient and widely used instrument aimed at facilitating access to credit for small businesses, at any stage of their development, by sharing the risk with the lending institutions. It has been widely used in most of the EU countries for several decades since the end of the 2nd World War. These funds obviously are the solution for the banks to accept loan appli-cations with a higher level of risk. The cities can usefully participate in these funds for their less favoured areas with some condi-tions that the ECO-FIN-NET partner cities have highlighted.

There is no point in giving a detailed de-scription of the business loan guarantee schemes in this paper, but some features should be underlined:

• Their fi nancial resources come from guarantee fees paid by the borrowers, the income from their investments and the subsidies they may receive.

• A guarantee fund is characterised by its leverage ratio. This ratio depends on two essential factors: the percentage of risk taken by the fund and the probability of borrower’s default. Other factors are also important: the return on investments,

25

2

the recovery of losses and the guarantee fee paid to the guarantee fund.

• The lower the risk and the higher the leverage ratio, the stricter the risk ap-praisal and the higher the ratio, with the possible counter-productive effect that a guarantee fund that would only approve risk-free applications would loose its « raison d’être » which is to encourage banks to be active on a market segment they assess as too risky.

• Fine-tuning this contradiction is not easy. It mostly lies on experience and the eco-nomic situation that condition the risk of business failures. For instance, the lever-age ratio of a guarantee fund dedicated to new businesses is around 6, and 22 for short-term loans that are much less risky.

This is the reason why a critical mass should be reached with guarantee funds (they should not be too small). In fact there are some experiences of cities setting up their own guarantee funds but these experienc-es generated poor results. The guarantee funds should generally operate at national or regional level (not local level that cannot allow for a suffi cient volume).

A good example of this necessary condition of a minimum critical mass is given by the City of Gdańsk (see at the left).

This critical mass effect also applies to the qualifi cations and the corresponding man-agement costs for these organisations and this condition generally implies that these guarantee funds be managed by specialised organisations, possibly with a credit institu-tion agreement: the examples of the French “Banque des PME” (BDPME/SOFARIS- bank for small and medium sized businesses) or the Regional Guarantee Schemes in Germa-ny illustrate this requirement:

In France, at national level, the biggest French company (BDPME/SOFARIS) special-ised in the management of SME guarantee schemes, receives funding from the central level and from French and European fi nancial institutions. They set up a subsidiary that organises partnerships with the regional authorities, to provide sound management of the regional guarantee funds, fi nanced with regional budget resources.

Their regional agencies appraise the appli-cations, prepare and manage the guarantee commitments. The funds’ fi nancial manage-ment is done at national level. There is no need for an additional structure. The re-

gional means are entirely dedicated to guar-antees. The operational costs are borne by the return on investments and part of the guarantee fees paid by the benefi ciary busi-nesses, allowing for a low cost procedure.

Additionally, the experience accumulated on several Regions and a large number of businesses make it possible for this fi nan-cial institution to guarantee the regions against the risk of funds’ shortage: with this procedure the Regions never take a commit-ment that can be higher than their budget allocation. If the risk rose to a higher level, it would be covered with the own resources of the fi nancial institution.

The target and the parameters of each re-gional fund are negotiated between the re-gion and BDPME. The Region set its priori-ties in terms of targeted businesses (start-ups, transfers, growth, equity…), sectors of activities or geographical areas. However these priorities should not be too restric-tive and too small guarantee fund should be avoided to allow for good risk sharing and increase the leverage ratio.

Of course, in this regional framework the cities have the possibility to bring their con-tribution and call for specifi c conditions for their local businesses in specifi c areas: a city has the possibility to offer more favour-able conditions than the general scheme to the businesses/projects located on (part of) its territory by paying the correspond-ing additional costs to the organisation that runs the guarantee fund (BDPME in this case). This fl exibility is negotiated between the city and BDPME case by case (Micheaud 2005).

Following the previous observations, the ECO-FIN-NET network partner cities come to the following recommendations:

• A Guarantee Fund should be a fl exible instrument opened to a contribution by the public local authorities, targeted to the businesses established on (part of) their territory according to negotiable guarantee conditions.

• In particular, the contributing authori-ties should make sure that the guaran-tee fund is really opened to small busi-nesses, i.e. make small projects “bank worthy”: it should not only be a system that facilitates the procedure for seizure of collaterals from the traditional bank clients.

• Mutual guarantee schemes should be envisaged when strengthening the links

within a local / sectoral business com-munity is an issue. The small businesses are generally reluctant to join any form of business association: this is due to the mere characteristics of the entrepre-neurial spirit (=be independent) but also to the lack of perceived services deliv-ered by these associations. Entrusting a business association with the possibility to deliver loan guarantees will greatly in-crease the visibility of their services for the potential SME members. This should possibly be considered in some new Member States where small business representative organisations need to be reinforced. Additionally it may be a good instrument to fi ne-tune the guarantee conditions to the reality of the local busi-nesses or specifi c branches of activity.

• Guarantee funds should be designed on a rather large basis to diversify and spread the risks and reduce the opera-tional costs: this means that local guar-antee funds (limited to the territory of a municipality) should be avoided. This latter recommendation is not contradic-tory with a local authority conducting a specifi c action on a specifi c territory: this authority can contribute to a wider fund with specifi c conditions for those busi-nesses that are located on the territory of the municipality. The local authorities should consider bringing a fi nancial con-tribution to existing guarantee schemes, to guarantee loans to local businesses or to increase the guaranteed loan per-centage for the small businesses in the less favoured area.

• Counter guarantee systems at national level should be developed as well as the European Counter Guarantees delivered by the European Investment Fund (EIF).

• The guarantee funds should be managed by specialised fi nancial institutions in order to increase the leverage ratio and lower the operational costs.

2.1.2 Costs of small loan applications

When small businesses apply for a loan, they have to prepare a loan application which sometimes means business data, business plan, list of available collateral items…The small entrepreneurs may not be aware of these requirements or consider them as an excessive administrative burden. This may result in poorly prepared loan applications which may imply additional costs for the lending institutions that are not necessarily proportionate to the loan amount: in reality the smaller the loan, the higher the percent-age of costs in comparison to the amount of loan.

Charging the costs of processing the loan applications results in increasing the actual interest rates, sometimes to too high levels to be commercially acceptable or to illegal levels in the countries where interest rates are capped by law. This situation frequently occurs with small businesses applying for small loans with micro credit institutions.

Small loans are not assessed in the same way as large ones but well prepared appli-cations are easier (and less time-consum-ing) to process by the fi nancial institutions.

24

The City of Gdańsk in order

to support the local busi-

nesses initiated a local

guarantee scheme until they

realised that they could not

reach the critical mass alone

for a sustainable scheme. But

their initiative prompted the

Region to start such a guar-

antee scheme on the regional

level with the support of

the national Polish Agency

for Enterprise Development

and EU funding. The City of

Gdańsk is a major partner in

the regional scheme. Loans

are guaranteed up to 70%.

Important issues such as

targeting at very small busi-

nesses and the operation

structure vs. guaranteed

loans volume still need to be

addressed.

For further information:

Guarantee Fund Offi ce,

Katarzyna Delankiewicz,

President, ul. Długi Targ 1/7, 8-828 Gdańsk, Tel. +48(0)583203405,

+48(0)583203406,

Fax: +48(0)583203637,

e-mail:prfpk@prfpk.com.pl,

www.prfpk.com.pl

Revitalised district in Gdansk

In the Region of Marseille

(PACA), the regional guar-

antee fund is part of this

nationally designed scheme.

It works in close coopera-

tion with the local initiative

platform CPEM developed by

the City of Marseille by giv-

ing guarantees for the CPEM

micro loans.

In Austria a guarantee scheme is designed at

national level and develops interesting concepts

for SMEs:

• Kreditaktion für Kleingewerbe (Credits for

small businesses)

The Fund guarantees small business loans to

reduce risks of credit and change of interest.

The loans may cover material and immaterial

investments, (partial) purchase of companies

and working capital.

The AWS (Austria Wirtschaftsservice GesmbH

(Austrian Business Service)) covers 80% of

investment loans and 50% of working capital

loans. The benefi ciary businesses pay a 0.5%

premium p.a. for investment loans and a 2%

premium p.a. for working capital loans.

Interest rates are capped, which reduces the

risk of rate increase and are limited to a certain

level. Because of the support scheme there

are fi xed interest limits for the fi nancing bank,

which makes the interest development more

predictable for the company.

• Garantien für Eigenkapital (guarantees for

own capital)

From AWS (Austria Wirtschaftsservice GesmbH)

for improving the fi nancial structure of SMEs.

The guarantee covers shares of a company (ex-

cept in the tourism and leisure industry)

The guaranteed quota is 50 to 100% of shares,

up to € 20.000 per person and up to € 1 Mio per

company. The guarantee lifetime of is up to 10

years.

The costs for the guaranteed businesses are a

guarantee fee of minimum 0.5% per year of the

share value plus additional handling fees and

guarantee promissory notes.

For further information: Vienna Business Agen-

cy, Burkhard Weiler, Tel. +43(0)14000-86796,

bweiler@wwff.gv.at, www.wwff.gv.at

27

2

Several possibilities have been studied by the ECO-FIN-NET members. One of them consists in delivering advisory services to the applicant businesses in the preparation of their loan applications: advisory service support schemes are described in chap-ter 3.

The ECO-FIN-NET recommendation is to add such fi nancial expertise to the list of other types of expertise eligible to these support schemes like other types of advisory serv-ices (market surveys, production process, human resources organisation…) supported in all the EU Member States, generally at re-gional level.

The local authorities should have the possi-bility to contribute fi nancially (like with the regional guarantee schemes).

To simplify the procedure, it has been imag-ined that every registered or pre-registered business would be entitled to a certain number of “vouchers” covering the process costs incurred by any recognised fi nancial institution (including the lending institu-tions) as it is used in Germany for traditional advisory services by consultants. This sys-tem has the advantage of simplicity –no new organisation, existing long time tested procedures- and confi dentiality, which also is a key factor for success as the small busi-nesses tend to trust a limited number of ad-visers, especially in fi nancial matters, banks being one of them.

Another possibility (not exclusive from the previous one) meets the requirements of the stakeholders and the ECO-FIN-NET net-work members also deem it useful to make it a recommendation:

The idea is to make loan application process-ing costs by the fi nancial institutions, also eligible to the existing business advisory support schemes.

2.1.3 Lack of information

To take a decision on a business loan ap-plication, banks need some information on the applicant: this information is based on the business history (track record) and prospects (new market, new client, new in-vestment…). A reliable accounting system is often an important instrument for collecting this information.

Unfortunately the SMEs and particularly the smallest ones do not consider this informa-tion as a priority but rather as an unproduc-

tive administrative burden. This is due to the facts that entrepreneurs generally have a limited accounting culture and even more limited staff (generally the spouse!) to pre-pare these data. The result is a lower confi -dence in the project by the banks and con-sequently a higher risk assessment. For new projects without proven track record, these negative factors are even more applicable.

Guarantee funds have previously been rec-ommended as a useful instrument to de-velop trust in the projects and lower the risk perception by the banks. Unfortunately obtaining a guarantee by a guarantee fund generally means that the entrepreneur needs to prepare a loan guarantee applica-tion based on much the same parameters as the loan application itself. For the applicant entrepreneur this is perceived as a uselessly complicated procedure if not absurd.

The ECO-FIN-NET network members pro-pose the following solution to address this problem:

The processing procedure for loan appli-cations should be designed in a way that avoids duplication of work. As a fi rst step in this direction credit check results could be communicated between banks and guaran-tee funds with the consent of the companies concerned. This cooperation with the aim of leaner and cheaper processes can be further developed and intensifi ed:

• Institutional cooperation between lend-ing and guarantee institutions, giving enterprises the option of a one-stop ap-plication point.

• Designing lending products with a “built-in” guarantee (“exception from liabili-ty”) which is “automatically” applied for together with the loan product.

Other factors play an important role to in-crease the quality and the reliability of the information produced by the entrepreneurs: they are closely related to the services that are delivered to the SMEs and will be de-scribed in detail in chapter 3.

2.2 Public Financial Support

The vast majority of the businesses are of very small size (sole proprietors or micro-businesses) and they face disadvantages in terms of:

• Economies of scale, • Access to funding,• Cost of funding,• Access to relevant information,• Access to expertise in particular on fi scal

and regulatory environment,• Representation by professional organi-

sations.

These disadvantages increase the level of risk for banks to fi nance the projects of these businesses, which makes the banks more reluctant to take commitments in these areas, and they call for compensation, which justifi es special public support.

This public support needs to be in line with the micro and small business necessities: the requirements that concern public sup-port design have been listed in view of analysing the adequacy of the actual instru-ments with the business expectations in the introduction chapter.

Other criteria were also considered:

• How to avoid allocating public funding on projects that would develop without it?

• The possible responsibility of the pub-lic authorities supporting businesses and the possible domino effect that may prejudice other neighbouring business-es.

Different forms of fi nancial support have also been analysed with an explanation of their internal constraints.

Bearing in mind these elements, the ECO-FIN-NET network discussion was focused on the following questions:

• Which instruments should local authori-ties develop to meet their small business community requirements?

• Can they develop these instruments or best be involved in them?

• How can they contribute in running them or having them run satisfactorily?

• How can existing schemes be improved?• Partner cities have developed different

expertise in supporting their small busi-ness communities: what are the specifi c features of this expertise and how can it be adapted to other contexts?

Inadequate access to fi nance, being a prob-lem for potential entrepreneurs, it is logical and legitimate that, in the deprived areas, the municipalities strive to fi nd solutions to this problem and allocate fi nancial resourc-es for this purpose. The observations in this fi eld tend to indicate that actions need to be carefully designed to better suit the micro and small business expectations and also fi ll the gap between these expectations and the market reality.

26

The Cities of Leipzig and

Vienna are providing such

type of support and fi nance

the preparation of business

plans with chartered busi-

ness consultants.

In Germany, there are regional guarantee insti-

tutions (“Bürgschaftsbanken”) in all 16 federal

states. Their offer of guarantees is not limited to

a minimum size of the target company and they

also guarantee loans below 25,000 Euro. The

application procedure, however, may be quite

long and differs between these institutions.

Therefore applying for a guarantee causes ad-

ditional proceeding costs, not least because of

additional checks of the creditworthiness of the

entrepreneur or enterprise.

There are, however, several examples of how to

minimize this effect and make the provision of

guarantees as a substitute for lacking collateral

easier and cheaper:

In the federal state of Baden-Württemberg the

regional state fi nance institution (“L-Bank”) and

the guarantee bank (“Bürgschaftsbank Baden-

Württemberg”) cooperate closely, so that enter-

prises only have to hand in their application at

one credit institution and the awarding process

is organised between the participating partners.

This procedure is leaner, costs less and provides

results within a few weeks.

The national state fi nance institution (“KfW”)

offers micro and start-up loans which are partly

guaranteed by the European Investment Fund

(EIF) which is paid for that from the EU Multi-

annual Programme for Enterprises (MAP). This

EU support enables KfW to offer the micro and

start-up loans with a “built-in guarantee” of 80

percent (“exception from liability”). Thus, the

application for a loan includes directly the guar-

antee without any extra procedure.

An even further advanced product is found in

North Rhine-Westphalia, where the regional

state fi nance institution (“NRW.Bank”) offers

so-called subordinate loans to enterprises in ob-

jective 2 areas. Subordinate loans are quasi-eq-

uity and they can ease the lack of equity which

exists in many SMEs; this, however, presents a

higher risk to the provider of the loan which is

refl ected in higher interest rates (“risk premi-

um”). NRW.Bank uses ERDF grants for objective

2 areas to partly subsidize this risk premium and

offer more easily acceptable interest rates to the

benefi ciaries. For this purpose the ERDF grants

are put into a fund which also receives refl ows

from loans being paid back and therefore may

be used several times - increasing the leverage

of the grant money.

2.2.1 General framework for city involve-ment

The ECO-FIN-NET started with designing the general framework for the cities’ sup-port, then addressed the characteristics of the various instruments that can be imple-mented to support the small businesses in the less favoured areas.

The prime condition for the support instru-ments to be used by the small businesses is to be in line with the business expectations. The ECO-FIN-NET members underline the following conditions:

Small and micro-businesses put emphasis on fi nancial services.

2/3 of the interviewed small and micro-businesses call for services in the fi nancial sector, because they see it as crucial for the development of their activity and also because they sometimes face diffi culties in access to fi nance: as a consequence they need support in preparing their applications for funding, but also in designing their over-all strategy according to expectable fi nan-cial resources. In the objective 1 areas, this percentage is even higher, 75%, probably because in deprived areas fi nancial diffi cul-ties are traditionally more acute, and also because a wider range of supporting instru-ments are available, and these instruments are better funded that in other territories (DG Enterprises 2002a, PAED 2004).

Financial problems are one of the most fre-quently cited problem for small and micro-businesses since banks that are generally perceived as the natural source of funding through credit are reluctant to give loans to these businesses because of the high risk and administrative costs per loan.

Other sources of funding, through equity, is perceived reluctantly by entrepreneurs, dangerous for business independence, not linked to day-to-day operation and compli-cated to access.

They expect a stable and predictable envi-ronment.

Small and micro-businesses are often run and managed by a single person, with very limited resources (human and fi nancial) for the legal and regulatory environment fol-low-up. They have no time nor background to keep regularly updated on the possible changes that may affect their business. They also need to plan their investment decisions

on a long term. So in all countries one of the strongest expectations is of a transparent legislation, which is predictable, non-con-tradictory and avoids discriminatory inter-pretation, as well as ongoing funding sourc-es rather than temporary schemes. In some countries unpredictable environment may be one of the main reasons for entrepreneurs to escape in the “shadow” economy. On the other hand, favourable conditions may be a powerful incentive to encourage “informal” entrepreneurs to become “formal”.

SMEs are more sensitive to the funds made available to them than to the cost of these funds.

For the small businesses, access to fi nance is a very important and diffi cult issue. This even is one of the most frequently problem mentioned by the small and micro-business-es: lack of access to credit or insuffi cient funding can be a cause of incapacity to de-liver, thus jeopardising the mere existence of the businesses. Funding is thus a “com-modity” with a very low elasticity, which explains why small and micro-businesses are more sensitive to the funds made avail-able to them than to the cost of these funds: the cost of funding, in fact the cost of credit, can be included in the cost of the products or services the businesses provide. It is only one among various factors that infl uence the competitiveness of the businesses.

SMEs need information about funding and related support services.

The logical consequence of this perception by the small and micro-businesses, that fi -nancial issues and raising funds are of cru-cial importance, should be that entrepre-neurs are very much in demand of training and advisory services on these subjects.

Experience shows that they have very lit-tle time to dedicate to training (or pretend they do not have time) and the perfect way of providing these information and advice is still to be developed.

This information should be “reliable” for them, which means that it should be deliv-ered by well-known and reliable interfaces between the Administration and them-selves.

There is a certain form of distrust of the small and micro-businesses towards the Ad-ministration, even when they are not in the ‘informal” economy: this is due to the fact that the Administration they are most often

in contact with, is the tax administration and they are scared that any information on their operations be communicated to the tax offi ce, with the detrimental consequences they can imagine.

Consequently they tend to limit the number of persons that are aware of they actual situ-ation, in particular with fi nancial data: their normal “advisers” tend to be persons they pay – accountants, fi scal advisers, banks… – since services delivered free of charge are suspicious.

One signifi cant exception is the relation to peers and business colleagues and this is one of the main “raison d’être” of networks and of the professional organisations and their successful operation in many training programmes and personal advisory serv-ices.

Professional organisations or offi cial busi-ness community representative organisa-tions are often absent or inactive in disad-vantaged areas.

Unfortunately in most disadvantaged ar-eas, these organisations are not or cannot be very active. Entrepreneurs in these areas sometimes consider themselves as mar-ginal –self employed that set up their own businesses because of lack of local jobs and unemployment, women and ethnic commu-nities that do not feel integrated in the tra-ditional business community. They do not dare to go to the Chambers of Commerce or other professional organisations because they do not feel them as their world.

On the other hand many of these institutions have made very little effort to integrate these entrepreneurs (who were in some cas-es even hardly considered as entrepreneurs) because of cultural or language problems.

In this case the peer relation that can be so productive needs to be organised on the ba-sis of the local community.

At the same time some efforts need to be made to open the traditional established business community or to break the per-ceived barriers.

These requirements have consequences for local support design and the ECO-FIN-NET members propose the following recommen-dations:

The cities should envisage long-term sus-tainable fi nancial support.

Micro and small businesses tend to look for solutions to their problems only when they face these problems. It is said that small entrepreneurs have limited capacity to an-ticipate, but on the other hand if they antici-pated all the problems they might face, they might not start their activity at all!

So they expect immediate solutions at the time they need them and designing a sup-port scheme that will be opened only dur-ing a short period, even if it is recurring on a longer period, will prove inadequate.

Access to information on support schemes is also a diffi culty for micro and small busi-nesses (this will be described in detail in the following chapter). In the above-men-tioned EC survey, the percentage of busi-nesses aware of support services that are made available to them ranges from 22 to 35% according to business size (the small-est being less aware) and in all EC countries. The percentage of businesses having used these support schemes in the last fi ve years is 20% as an average in the EU. These fi g-ures have to be put in relation with the fact that these support schemes have been de-signed and promoted for more than 20 years in most of EU countries!

Taking these elements into consideration implies that Municipalities should support their micro and small business communi-ties with adapted, simple, easy to promote, and sustainable instruments, with the same rules during a long period (additionally it is the only way to ensure an effi cient promo-tion campaign).

Long-term procedures imply sustainable resources.

Generally municipal budgets are voted on a yearly basis. It makes it diffi cult for mu-nicipal decision makers to take fi nancial commitments on an extended period of time covering several years. It is generally easi-er to allocate a lump sum in a specifi c year budget.

But there is a contradiction between the micro and small businesses expectations of having access to well known, reliable and long lasting support procedures with city budgets that need to be approved and vot-ed every year (and assuming that the same political decisions are taken after each elec-tions). It has been demonstrated above that

2

29

The City of Vilnius designed

a grant scheme, which was

opened for a limited period

of time. This was the fi rst

grant scheme launched by

Vilnius City Municipality to

support SMEs. The scheme

was highly successful, but

application procedure was

perceived as too complicated

by the grant recipients. And

what happened was that Vil-

nius issued grants not to the

most vulnerable businesses

who needed it most, but to

the bigger ones who had

a possibility to react more

quickly and had relevant

qualifi cations to fi ll in all the

forms and provide necessary

documentation.

By seeing this and a high

interest of entrepreneurs,

Vilnius introduced a new

continuous grant scheme,

which is easier to apply for,

less documents and prepa-

ration is required, even if

the amount granted is more

modest as well.

For further information:

City of Vilnius,

Danute Maksimaviciene,

Tel. +37052112210,

danute.maksimaviciene

@vilnius.lt, www.vilnius.lt

28

SMEs require

• stable

• visible

• effi cient

procedures for support

measures.

Handicraft fair in Vilnius

support schemes that are opened on a lim-ited period of time are not adapted to micro and small businesses‘ expectations.

Expected support is a combination.

Expected support is a combination of grants, loans with guarantee schemes, ven-ture capital and related advisory services, especially on market information and man-agement skills. Bearing in mind that micro and small entrepreneurs prefer to have a limited number of advisers, comprehensive schemes will be mostly appreciated.

The previous observations tend to indicate that actions need to be carefully designed to better suit the micro and small businesses’ expectations and also fi ll the gap between these expectations and the market reality.

As a general rule, local authorities should be very careful to contribute to the “stable and predictable environment” businesses need to develop: in particular they should be very careful before increasing the level of taxation or other costs businesses have to bear or changing regulations.

Partnership is a natural and necessary con-dition.

• With fi nancial institutions that provide fi nancial technical expertise

All the expectations of micro and small busi-nesses cannot be met by a single instrument or by a single organisation. There are con-tradictions between all these expectations and requirements.

Access to funding requires specifi c exper-tise, which means developed on a wide ba-sis, but delivered to micro and small busi-nesses that need this expertise to be deliv-ered locally.

For instance, the guarantee schemes need a critical mass to be operational but they address single applications that need to be promoted locally among the local business community.

Funding needs to be sustainable which im-plies stable resources whilst local budgets are voted on a yearly basis. Stable resourc-es are available from private donors or from public sources operating at national or Eu-ropean level: all these resources need to be channelled locally.

The FEED experts very clearly recommend: “introduce innovative solutions to leverage government money for small and medium-sized business development by promot-ing the system of local partnerships. This is closely related to the development of a regional and local network of support to small and medium-sized businesses” (FEED 1999).

The solution for local authorities is to support punctually long lasting existing schemes, either with fi nancial institutions who specialise in funding micro and small businesses and/or with the mainstream re-gional EC funded procedures since access to EC structural funds is made at regional level.

• With business associations playing the role of an interface

Again there seems to be a contradiction be-tween the small business requisites: on one hand, the small businesses have a certain distrust vis-à-vis the Administration (includ-ing public local authorities- the cities staff) and favour the provision of information and services by peers or professionals they pay. But on the other hand the small businesses have no spontaneous tendency to be mem-bers of business associations and the ex-isting business associations generally do not put priority on the less favoured areas. Their fi nancial resources are also limited to pay for the expertise they may require.

The solution for the local authorities is to form a close partnership with the business associations and to support them in being more active, in having specifi c actions in the less favoured areas, the specifi c actions being the condition for the public support these associations may receive and for the public control that normally goes with this support.

The Cities of Leipzig and Gera (Germany) de-

signed each a comprehensive local grant scheme

for small businesses in an URBAN funded area,

situated in an objective 1 region. These good

practices including the organisation of the munici-

pal services in charge of SME support can also be

a model for disadvantaged areas having access to

heavy mainstream public support.

The activity of the City Offi ce of Gera is the role of

an interface between individual local businesses

and European funding with the URBAN funds.

However URBAN funding has a limited duration.

Regarding funding for SMEs, the City of Gera is a

direct benefi ciary of funding out of the EU Struc-

tural Funds (regarding grants for investments and

jobs). Whereas the mainstream funding targets

only on medium sized enterprises, the URBAN

SME Funding Scheme supports small and micro

businesses in the URBAN area.

If the city builds a trading estate (streets, mains,

etc.), the Federal State of Thuringia supports this

investment with funding out of the EU Structural

Fund. When selling the property of the trading

estate to investors / businesses only the plain

property price is claimed. Thus, the SME receives

the funding out of the Structural Fund through the

Federal State of Thuringia.

The EU funding period ends in 2006 and the new

funding programmes starting in 2007 have not

been worked out yet.

For further information: City of Gera,

Thomas Seidel, Tel. +49(0)3658381195,

europabeauftragter@gera.de, www.gera.de

City of Leipzig, Offi ce for Business Development,

Brigitte Brück, Tel. +49(0)3411235841, brigitte.

brueck@leipzig.de, www.leipzig.de

30

Allocation of public funds to

entrepreneurs in Gera

Source:

Archiv Stadtverwaltung Gera

2

31

In the City of Gera (Ger-

many), a good partnership

has been developed between

the Municipality staff and

business representative

organisations (Chambers

of Commerce, Chambers or

associations of Crafts, small

business associations…)

for the local grant scheme

management: these organi-

sations are involved in the

URBAN structures, such as

the membership in the steer-

ing committee URBAN II Gera

and the monitoring commit-

tee URBAN II, the partnership

is ensured.

The partner organisations

contribute to the promo-

tion of the scheme; provide

advisory services to prepare

the applications and the

Municipality staffs make the

projects evaluation and the

subsidies management.

SME in Marseille

Source:

Ville de Marseille 2005

This situation is well illustrated by the City of

Evosmos (Greece): entirely located in an objec-

tive 1 Region (less favoured area, access to

signifi cant EU funding through national and

regional schemes), they had to deal with a

business community mostly formed by micro

and single proprietor (family) businesses (bars,

restaurants, small shops…) and with a low level

of involvement by the traditional business or-

ganisations (Chambers of Commerce…).

As a fi rst step, the City organised (and paid for)

a local team of business advisers to support

the micro and small businesses in processing

funding applications for regional and national

grant schemes and participate in training pro-

grammes (role of interface between individual

local businesses and national organisations

that designed national and European funded

grant schemes for SMEs (mainstream support)).

In a second step they developed a partnership

with the local Chamber of Commerce who gradu-

ally became more and more involved in the

micro business community support.

Evosmos realised the necessity of a long lasting

support for the small businesses (need for a sta-

ble and predictable environment): they started

their activity in 1988: at that time they provided

services to hardly fi ve businesses. Now 17 years

later, they have built confi dence with their small

business community and it is more than 100

businesses that benefi t from the city support.

This best practice can be a model for disadvan-

taged areas with access to heavy public support

(EC funding) and weak professional organisa-

tions (new Member States?).

For further information: City of Evosmos,

Chalkidikis Paniagiotis, Tel. +30(0)2310756000,

voutsa.el@evosmos.gr, www.evosmos.gr

In Spain, the City of Gijón developed a coopera-

tion with the savings bank (Caixa) to offer micro

credit to specifi c target groups: single parent

families, immigrants, people older than 45,

disabled woman and long term unemployed.

Loan conditions: 15.000 euros max;

Redemption period: 4 years;

Interest rate: 5.5%.

The City of Gijón also gives its small business

community access to European funding through

the EQUAL initiative: the City Equal Micro-

credits:

Target groups: Entrepreneurs and micro busi-

nesses within the framework of Equal projects

located in Asturias

Conditions: Financial investments in working

capital not more than 50% (total

amount).

30.000 euros max; redemption

period: 3-5 year; interest rate: 4%

Guaranteed by the Regional Guarantee Fund

(ASTURGAR) and in collaboration with fi nancial

institutions offering better conditions; Support

by the regional entities, CEEI and IDEPA and

local entities as Municipal Centre Enterprises in

Gijon and La Curtidora in Aviles.

For further information:

City of Gijon, Isabel de la Huerga Iglesias,

Tel. +34(0)985182954,

proyectoseuropeos.alpee@gijon.es,

www.gijon.es

To summarise the position on the stakehold-ers, in the less favoured areas, it is a neces-sity that all types of businesses / projects be able to develop so that they can bring a positive contribution to creating wealth lo-cally.

Generally these businesses / projects are of very small size and need support in access-ing to funding. Banks are reluctant and need to be comforted in their provision of funds to the small businesses. The small business community requirements give legitimacy to the local authorities, the cities, in delivering this support.

The support should take the form of inter-facing the local small business commu-nity and the national/regional subsidised schemes (EU funding) in close cooperation with the fi nancial institutions (banks) that can provide fi nancial technical expertise and with the local business associations, the vocation of which is to provide individ-ual support to the businesses, including the smallest ones who need it most.

Historically the initial way local authori-ties have fi nancially supported the busi-nesses located on their territories, was with grants.

In a context of dwindling public resources and with the aim of improving public fund-ing effi ciency, the local authorities have looked for alternative solutions: the natural evolution was to give loans instead of grants and to guarantee loans instead of granting them. The budget previously allocated to grants could form the loan fund or the guar-antee fund capital and the recurring costs are limited to the re-capitalisation to cover the losses and the operating expenses. This evolution gave rise to “public micro-credit”, then to micro-credit with public-private partnership and then to micro-credit funds capitalised with fi scal incentives.

The ECO-FIN-NET partner cities have dis-cussed their experiences on four types of fi nancial instruments: grants, micro credit, guarantee schemes and venture or seed cap-ital. Guarantee schemes have already been presented in the previous chapter 2.1.1: the following paragraph will describe the ECO-FIN-NET fi ndings on the remaining three in-struments, grants, micro-credit and venture capital.

2.2.2 Grants

The traditional way local authorities have supported their micro and small business communities is through subsidies. This sup-port has many advantages:

• It is targeted at specifi c businesses that can easily be controlled through the ap-plication procedure: sectors of activities, entrepreneurs’ profi les, types of busi-nesses, types of investments (equip-ment, software, working capital, com-mercial promotion, staff, training…) can easily be defi ned according to the orien-tations the authorities like to promote.

• It can be open for defi nite periods of time, in line with the municipal budget periods.

• It can be tailored to the fi nancial com-mitments that have been approved by the budget (with a fi rst in, fi rst served procedure).

• It is easily marketable since every en-trepreneur is interested in receiving free funding. Additionally it has a clear vis-ibility.

But also according to OECD FEED experts, “subsidies cause a loss of tax revenue and give recipient businesses an unfair competi-tive advantage over other businesses with-out such privileges. Taxes are made higher for all other taxpayers in the country as a result of such incentives” (FEED 1999).

Additionally grants are often allocated only to profi table businesses which is not the general situation of new businesses: start-ups are thus discriminated negatively and other instruments need to be used.

Last but not least, it is a costly procedure if it is opened to a wide range of businesses, and it is only possible in case of existing national and/or EU funded scheme. In this case the Municipality acts as a local inter-face between the business community and the national organisation in charge of the national (and generally EU funded scheme). This situation raises two diffi culties:

• The local level has little infl uence on the eligibility rules of the scheme that can-not be adapted to the local reality.

• In times of restrictions that will prevail in old EU Member states, there are some doubts that these schemes can be main-tained after 2006 (during the next pro-gramming period of EC structural funds) and it is necessary to fi nd alternative solutions, more sustainable and with a higher leverage effect.

Bearing in mind these considerations and their previous experience of running various grants schemes, the ECO-FIN-NET propose the following recommendations for micro and small businesses in disadvantaged ar-eas:

• Grants are a very successful support in-strument for new projects that require a consolidation of the entrepreneurs’ eq-uity: they bring more confi dence to the projects, giving them access to other forms of funding.

• Grants should be considered as part of a fi nancial package aiming at making small projects bank worthy. In all cases these grants should be used as an in-centive for commercial banks (including private micro credit) to be involved in the projects and it is the local authority’s re-sponsibility to make it clear to the com-mercial banks, in general discussions with the local banks’ associations and with individual loan applications.

• In situations of scarce public fi nancial resources, grants should be reserved

to the consolidation of equity for new projects, irrespective of the investments and number of new jobs (these elements should only be taken into consideration for project credibility purposes in case of lack of track records).

• Priorities can be set for grant allocation by the local authorities, but automatic sectoral support, geared to specifi c in-vestments (for instance investments in ICT equipment) should be avoided as the main priority for grants is to make new projects (and new economic activity) start and develop on the long term.

Between 1981 and 1996, the City of Birmingham

developed a very successful (long lasting and

heavily funded) support scheme: the Business

Investment Scheme.

The Business Investment Scheme was a city

wide scheme offering grants, loans or equity

investments of up to £1 00,000 to SMEs in the

manufacturing and related industries sector.

The scheme sought to bridge the fi nancing gap

faced by businesses in priority areas, sectors

and client groups in order to enable them to

fully fund their development projects, e.g. relo-

cation, expansion, modernisation.

The criteria allowed grants up to 50% of project

costs of up to £50,000, loans of up to £100,000

and equity investment between 5% and 19%

of the share capital. This ensured that only a

minority stake was held. The scheme levered

in much larger sums from banks, the Depart-

ment of Trade and Industry (DTI), loans from

the EU and other sources enabling marginal but

economically benefi cial projects to proceed.

The risks of failure were reduced by supporting

SMEs with ongoing business advice from Offi c-

ers of the Economic Development Department

(EDD) and partnership organisations.

The annual budget was £1 million p.a.

The main results were:

• 600 businesses were supported;

• £10 million invested;

• 10,000 jobs have been created;

• 8,000 jobs have been preserved;

• £126 million were levered;

• £790,000 are repaid;

• £210,000 are written off.

For further information: City of Birmingham,

Mohammed Zahir, Tel. +4401213032956,

mohammed.zahir@birmingham.gov.uk,

www.birmingham.gov.uk

32

Meeting of women

entrepreneurs in Vienna

Source: Grätzelmanagement.

Wien 20. WWFF

2

33

Centre of small creative busi-

nesses in Birmingham

The City of Vienna has developed an original

partnership with the Economic Chamber to im-

plement a fi nancial support scheme in favour of

the small businesses: the “Gemeinsame Kredi-

taktion der Stadt Wien und der Wirtschaftskam-

mer Wien” (Joint action for interest support

of the City of Vienna and the Vienna Economic

Chamber):

Target groups: SMEs which are members of the

Vienna Economic Chamber for investments or

for bridging the gap of temporary lack of liquid-

ity. The earmarked funds are partly from the

city and partly from the Chamber. Investment

loans as well as working funds loans can be

subsidized.

The raised loan can be up to €4.500 (for start

ups €6.000). The interest is 3% current ac-

count, due half a year. Pay back period is 4

years, bankable securities and proof via bank.

For further information:

Vienna Business Agency, Burkhard Weiler, Tel.

+43(0)14000-86796, bweiler@wwff.gv.at,

www.wwff.gv.at

2.2.3 Micro-credit

For the local authorities that are interested in supporting their micro and small busi-ness communities, it is an option to develop a micro-credit activity. In this case it may be useful to remember how successful special-ised micro-credit organisations operate.

Micro credit principles

The defi nition of micro-credit is for loans under 25,000 Euro. They are generally re-fundable on a short-term period, with little or even no debtor’s guarantee. According to FEED experts, micro-credit schemes have been most effective in environments distin-guished by fi ve characteristics:

• “Structural change or a persistently negative condition in an economy cre-ating declining wage rates, growing un-employment, and a high proportion of “working poor.”

• Limited employment options due to the closure or lack of large employers or in-dustries that were the main source of lo-cal jobs.

• An ethnic culture of entrepreneurial ac-tivity and a high proportion of the popu-lation interested in self-employment and entrepreneurship.

• Economic opportunities with low barri-ers to entry into the marketplace that re-quire small amounts of start-up capital.

• A signifi cant credit gap between the need for fi nancing and the availability of personal resources (such as savings) or formal credit (such as bank loans)” (FEED 1999).

These are typical conditions that prevail in urban disadvantaged areas and this is prob-ably the reason for considering micro-credit schemes as well adapted to these business communities.

Micro-credit schemes also have three main categories of development objectives:

• Poverty alleviation, helping poor people to create additional or even their only source of income: it may be the start-ing point for setting up a micro-business and an opportunity for developing self determination;

• Self-employment programmes for peo-ple who want to set up their own activity on a stable basis with their own micro-business, bearing in mind that the vast majority of micro-businesses do not aim at growing but at providing stable and decent income to the entrepreneurs and their families;

• Micro-business growth to support the development of existing micro-business-es into small businesses with access to the traditional banking system.

FEED experts indicate that this latter ob-jective may represent only 2 to 5% of busi-nesses but they are worth considering since they have an interesting job creation capac-ity. Additionally, if all micro-businesses do not grow into a small business, almost all small businesses started as a micro-busi-ness (FEED 1999).

These again are the general objectives local authorities should consider when support-ing their micro and small business commu-nities.

Micro-credit schemes may take various forms of making loans:

• peer group lending where loans are made to one or two individuals within a small group typically of fi ve: this method is being used in poor rural areas;

• solidarity group lending where loans are made to 6-10 members of a group who cross guarantee each other;

• village banking with credit and savings associations created and managed by village communities, in rural areas;

• direct lending which is very similar to traditional bank lending: loans are made

The City of Vienna (Austria) has designed 5 grant

schemes for SMEs and start up companies:

1. JungunternehmerInnen – Förderungsaktion

(inkl. Plusprämie)

The Start up grant (incl. additional premium) is

intended to consolidate the starting capital:

Target group: persons starting their own business

for the fi rst time and young enterprises existing

for no longer than 2 years (businesses in tourism

and leisure industry are excluded).

Material and immaterial investments can be sub-

sidized with 10%, maximum amount of the grant

is €21,000.

Additional premium may be applicable for invest-

ments with high innovation and growth potential.

This investment premium ranks between 5 to 10%

of the applicable costs.

2. Gründungsbonus (Founders bonus) also in-

tended to consolidate the starting capital, with a

leverage effect for the public funds:

• Target group: Persons intending to start their

own small business for the fi rst time.

• Savings from own capital starting at least 2

years ahead of company set up.

• The founders bonus is 14% of the savings

with a maximum of €7,700 per company.

• The duration of the savings period is min. 2

years and max. 6 years.

3. Nahversorgungsaktion der Stadt Wien (retail

shops support scheme of the City of Vienna)

Target groups: small companies, existing at least

for 2 years, in several branches of the retail sec-

tion.

Applicable costs: training and consultancy costs,

building and equipment investments, software,

machinery and construction costs. The grant is

10% of applicable costs with certain minimum

investment levels, with a maximum grant of €10,000 within 3 years.

Interestingly, the impact of the retail sector that

is traditionally excluded from support schemes is

recognised with this grant scheme.

4. Wiener Strukturverbesserungsaktion (Infra-

structure improvement support scheme of the City

of Vienna)

Target groups: SMEs in production, wholesale and

R&D and production related services.

Applicable costs: purchase of company plots with

or without building; erection of a company build-

ing, refurbishment or extension; planning and

consultancy costs

The minimum investment for small companies

must be min. €150,000, the grants cover 15% of

the eligible costs (maximum grant of €750,000

within 10 years)

5. Internationalisierungsförderung (Internation-

alization support scheme)

Target groups: SMEs for implementation or new

orientation of business relations in international

markets.

Applicable costs: consulting, homepages, taking

part at international fairs and exhibitions, publi-

cations, translation, market studies

The grant covers partly these costs (20% - 70%)

with a maximum of €10,000 per company per year.

For further information: Vienna Business Agency,

Burkhard Weiler, Tel. +43(0)14000-86796,

bweiler@wwff.gv.at, www.wwff.gv.at

34

2

35

5 LEED: Programme on Local

Economic and Employment

Development, Territorial De-

velopment Service, OECD Or-

ganisation for Economic and

Co-operation Development

The grant scheme developed by the City of Gera

(Germany) is an on-going procedure opened all

year long. It has been in force since 2003. This

offers the advantage that if the granted busi-

nesses have to return funds; these funds can

be available for new projects within the same

scheme.

At the moment the projects are funded with

the fi rst tranche and about half of the available

funds are disbursed.

For the second tranche (innovation and technol-

ogy projects) the application period is open.

But the deadline for the last project applica-

tion by the SMEs is set at 30 June 2006. This

deadline has been set because of the eligibility

regulations of the EU, the validity of the URBAN

II programme Gera, and the n+2 rule. With the

deadline it should be ensured that businesses

implement and claim their investments until

2008 at the latest.

For further information: City of Gera,

Thomas Seidel, Tel. +49(0)3658381195,

europabeauftragter@gera.de, www.gera.de

In 2003, the Municipality of Vilnius took the

decision to design a new fi nancial instrument to

support their small business community. This

instrument has been completely funded by the

city budget, but a local partnership with fi nan-

cial institutions (loans and guarantees) and the

Labour Exchange, an organisation in charge of

providing new staff for the businesses, was set

up for the selection of the funded projects. The

Economic Development Division of the Economic

Department of Vilnius City Municipality Adminis-

tration designed the scheme and runs it.

This scheme was designed to support new work-

place creation activities, and up to 65 per cent

of workplace creation expenses were covered by

the Municipality (expenses were covered only if

employee was hired from the Labour Exchange

Offi ce). The remaining amount had to be covered

by using own funds or by borrowing money from

participating credit institution. If the business

decides to take a loan, it is guaranteed by guaran-

teeing institution, participating in the scheme.

Since the very beginning, the project has been

designed in partnership with other institutions

(loan scheme, guarantee scheme and labour

organisation).

Both selected institutions (credit institution and

guaranteeing institution) are acting in favour of

SMEs. They are the only one specialising in this

fi eld among this type of institutions in Lithuania

(limited number of possible partners). When the

city proposed to them to participate in the project,

they immediately agreed.

For further information: City of Vilnius, Danute

Maksimaviciene, Tel. +37052112210,

danute.maksimaviciene@vilnius.lt,

www.vilnius.lt

to entrepreneurs based on applications with a business plan or elements permit-ting to appreciate the business capacity to refund the loans. Loan offi cers need to provide assistance to the entrepreneur in the preparation of the loan application and during the loan monitoring.

This last form of micro-credit is probably the most suitable for developed economies, especially for existing businesses aiming at growth.

There is a consensus that micro and small businesses do not only need funding but also market information and management skills. Successful micro-credit institutions are obliged to offer these three services to-gether.

The OECD LEED5 report on micro-credit indi-cates that most micro-credit schemes share fi ve elements:

“Targeting of particular market nichesGenerally, micro-credit schemes target certain groups of entrepreneurs (women, minorities, low-income individuals) or busi-nesses (start-ups, existing micro-business-es that want to expand, businesses in par-ticular sectors, or businesses located within a geographic area).

Delivery of credit through a disciplined lending methodology

The most common lending methodologies are direct lending (a loan to one individual with collateral), peer lending (loans to a small group of individuals or members of a group whose shared obligation replaces traditional collateral), and modifi ed group lending (lending to the individuals within a community).

Provision of some pre-credit technical assistance

Pre-credit technical assistance is provided either as formal, mandatory training (for start-up businesses) or as assistance in com-pleting the loan application or a business plan. Training can be a series of meetings or a formal, 6-10 week training programme for start-up businesses, which imparts basic business knowledge and screens out those who are not ready to start a business or re-pay a loan.

Provision of ongoing business assist-ance for borrowers

To improve chances of success and loan re-payment, most programmes provide ongo-ing business advice and problem solving to

their borrowers. This is usually structured as part of regular loan monitoring, separate advisory services, or a peer-based support system.

Development of programme operationsIn North America, most programmes have developed systems for approving and docu-menting loans, monitoring the loan port-folio, fi nancial and cash management, and staff development and training.

These are designed as management tools to control cost ineffi ciencies, monitor loan loss rates, and prevent rapid staff turnover, any of which can quickly render a programme in-effective” (LEED 1996).

Public micro-credit schemes

In France, the Public Authorities have de-veloped best practices by directing their fi nancial support not directly to businesses or credit institutions but through associa-tive networks. The associative networks supporting new businesses are composed of local associations in connection with a central coordination, a national direction or a federation. Even if, to increase their resources, these associations look for part-nerships with private organisations, large businesses or credit institutions, the major-ity of their resources are public subsidies that cover operating costs and form the loan funds. They are allowed to give loans by law. Some of them, with a special agreement, are allowed to borrow loans from fi nancial institutions to give loans to new businesses (Micheaud 2005).

Two types of loans are granted:

• loans to new entrepreneurs, without interest or guarantee, are intended to increase the capitalisation of new en-trepreneurs‘ projects and give easier ac-cess to bank loans.

• « solidarity » loans, with interests and guarantee of a guarantor (related to the borrower), granted to the unemployed, the persons receiving the minimum so-cial income and those who are excluded from the banking system.

Loans are granted by a loan agreement committee formed with voluntary (unpaid) members.

These associations also provide the new entrepreneurs with advice such as project assessment, business plan, preparation of bank loan and new business monitoring.

They must be staffed with adapted human resources. The two major issues are to re-cruit competent and motivated voluntary members and to control the amount of the staff payroll. The voluntary members gen-erally come from the business community (retired businessmen) or the banks. Some fi nancial institutions have developed specif-ic vocational training modules for their staff members who are interested in dedicating free time (out of working hours) with mi-cro-credit institutions. These trainings are conducted during working hours. In some business schools that have included a busi-nesses period in their curriculum, students may work in these associations to analyse the new businesses applications.

In France, there are two national comple-mentary networks, largely funded by local authorities.

« France Initiative Réseau » (FIR) is the most dense: initiated in 1985, it is a federation of 239 independent local member associations called « local initiative platforms » special-ising in supporting new entrepreneurs and granting loans without interest nor guaran-tee. The central organisation is in charge of negotiations at national level for the whole network, and of conducting evaluation pro-cedures for the evaluation and homologa-tion of each network member.

The role of the FIR network is:

• To deliver the homologation to the plat-forms on the basis of a strong local part-nership, quality of the staff expertise, market survey and transparent organi-sation;

• To prepare and update the quality chart for the platforms (AFNOR national stand-ards);

• To negotiate support at national level (Ministry of economy, EU funding, na-tional banks and other fi nancial institu-tions…) for the benefi t of all the network members;

• To prepare communication campaigns, networking with other national organi-sations.

Local platforms pay a subscription fee to the FIR network.

The total amount of loans at the end of 2004 was 148.9 M Euro. More than three fourth of these funds is of public origin (see comple-mentary data in annex I.1).

The ADIE association (association for the right to economic initiative) is the second national network (see complementary data in annex I.2).

If commercial banks have problems with the small businesses because of lack of collat-erals and high application processing costs, the micro-credit institutions, giving loans for even smaller projects, have the same prob-lems of guarantees and processing costs: it is obvious that micro credit loans should be eligible to guarantee schemes on the same conditions as bank loans.

In the same way as grants, public micro-credits should be used as incentive for commercial banks (including private micro credit) to be involved in the projects.

Traditional banks are interested in these net-works as a source of new small business cli-ents and as a new communication medium.

36

2

37

Entrepreneur supported by

CPEM in Marseille

Source: CPEM 2005

CPEM Loan Committee

Source: CPEM 2005

The City of Marseille is supporting a “local ini-

tiative platform” to deliver micro loans to small

businesses and individual projects. This plat-

form is an independent non profi t organisation.

It is a member of the France Initiative Réseau

(FIR) national network.

The Marseille local platform CPEM provides

micro loans without interest nor guarantee. But

another principal activity is to help negotiate

guaranteed bank loans with the regional guar-

antee fund.

It makes use of mentors and experts to analyse

the loan applications and accept the loans, and

to provide on going advisory services in some

small businesses. Experts and mentors can work

on a voluntary (non paid) basis or as profession-

als (paid). Retired experts’ networks are also in-

volved. For some specifi c expertise, the platform

has the possibility to draw on other platforms

expertise and this is an advantage provided by

the network.

In Marseille, the platform employs a staff of 10

(1 director, 1 manager, 5 credit agents, 3 secretar-

ies): their cost is entirely supported by the city.

The fund is capitalised by the city with regional

and national public contributions. Some private

donors as large businesses also contribute to

the fund capital. The number of commercial bank

loans linked with CPEM micro loans is increas-

ing.

Day-to-day costs (premises, equipment…) are

supported by public and private contributions.

These costs can be eligible to EU funding where

applicable.

For further information: City of Marseille,

Pierre Chaillan, Tel. +33(0)491990163,

pchaillan@mairie-marseille.fr, www.marseille.fr

Public / private partnership

Local authorities may also engage in part-nership with private stakeholders to capital-ize micro credit schemes and may have the possibility to negotiate specifi c conditions for businesses / projects located in specifi c areas (less favoured neighbourhoods).

In the UK the system of CITR (Community Investment Tax Relief) savings accounts with Charity banks coupled with a fi scal in-centive may be an option for public support. The ECO-FIN-NET network dealt with the recent evolution of micro credit schemes in the UK that aim at making these institutions more sustainable by giving them access to more stable fi nancial resources with market sanction.

Micro credit institutions have the possibility to create special banks, Charity banks that can collect savings with a fi scal incentive for the people who deposit their money on their accounts. These deposits are re-invested in charities and among others micro credit schemes. For the depositor it is a safe, ethi-cally and fi nancially interesting investment. For the micro credit institution it is a sustain-able form of fi nancial resource, not depend-ing on a reduced handful of donors (diversi-fi cation of donors) with an on-going process (independently of annual budgets).

Reactions were:

• This system requires a fi scal incentive, i.e. a national fi scal regulation that may not be adopted in all countries;

• Savings banks where and when they ex-ist, can provide the same service and there is no need to create new instru-ments (and new regulations) when the current system is satisfactory;

• For the moment this system is not fully operational in the UK and obviously some micro credit managers fi nd it eas-ier to negotiate their fi nancial resources with a limited number of donors.

Nevertheless it looks a promising solution in line with the general trend that tends to re-place public decisions and resources by pri-vate individual choices. As such it deserves careful attention during the coming period and may be an option in the countries that require micro credit development in a liberal environment.

In the UK, the City of Birmingham develops an

innovative approach to entrepreneurship for

specifi c target groups with partnership consortia

delivering comprehensive packages of coaching,

funding and services:

ENTERPRISE CITY

This is an initiative from Birmingham City Council

aimed at piloting a new method of working with

a target number of individual entrepreneurs. The

objective being to make a positive contribution to

local economic regeneration in key communities,

facilitating enterprise and stimulating new busi-

ness creation, encouraging innovation and aiding

business growth. Thereby, increasing the number

of residents potentially going into self-employ-

ment particularly from disadvantaged communi-

ties. This supports the Council plan 2005, the

Community Strategy, and the Development Direc-

torate plan.

Through a new commissioning gateway process,

launched in August 2005, proposals were invited

to deliver the Enterprise City project valued

at £800,000 across the city as outlined in the

detailed prospectus. Delivery will be through a

consortium approach commencing in April 2006

and running as an 18-month pilot until September

2007. The project will be independently evalu-

ated before completion. Selected consortia will

be allowed up to a maximum of 20% funding to

cover management fees, the rest must be spent

on direct delivery activity that adds value to the

individual entrepreneurs selected to participate in

the project.

The initiative aims to develop an Enterprise

culture, stimulate an innovative approach and

to nurture and encourage entrepreneurs. It will

improve the way in which entrepreneurs from the

Ethnic minority, Women and Young communities

can obtain the support they need to overcome the

unique barriers, which they face through a deliv-

ery consortia created for this purpose and that is

able to engage effectively at the community level.

How this will be achieved: - Recognising the need

for a new approach and greater collaboration be-

tween agencies Enterprise city has been designed

to encourage creative thinking and an entrepre-

neurial approach that will compliment existing

support provisions. The project is very focused

with specifi c requirements under 3 strands each

with defi ned target groups. These are Ethnic Mi-

norities, Women and Youth.

Each strand will be delivered by a purpose built

consortia (2 for ethnic minorities) consisting of

at least 2/3 organisations capable of delivering

a specifi c package of fl exible and measurable

support activity tailored to meet the needs of the

entrepreneurs that are identifi ed for support.

The approved consortia will act as a gateway,

identifying suitable individuals with entrepre-

neurial attributes via the existing infrastructure

network. The entrepreneurs are then preparing to

present themselves, their ideas and aspirations

before the “Enterprise Den”, an independent

panel of experts established to bring knowledge

and experience to the process. It is envisaged

this panel will consist of a number of experienced

individuals representing a combination of public

and private sectors that can add value.

Entrepreneurs demonstrating the right attributes

and selected by the panel will then access a pack-

age of support through the consortium. Through

a personnel development plan tailored to their

individual needs this will enable the entrepreneur

to develop the skills and knowledge necessary to

turn their ideas into reality. Those not selected

will still be signposted to existing support provi-

sion.

Each development plan must be clearly defi ned,

address the needs of the individual and clearly

show how it will result in the entrepreneur being

properly equipped to start their business. The

plan may take up to 12 months to complete and

could include a personal grant, specifi c skill de-

velopment, the attainment of new qualifi cations,

mentoring and coaching, as well as access to

group training.

Upon completion of their Development plan it is

envisaged the entrepreneurs will possess a good

business plan based upon their original ideas

and sound research and be “investment ready” to

start the new business or grow an existing one.

At this point they will be able to return to the

“Enterprise Den” panel to seek funding of up to

£25,000 from the “Entrepreneur Fund”, created

by Birmingham City Council specifi cally for this

purpose. Only entrepreneurs participating in the

Enterprise City project and completing their per-

sonal development plans will be eligible to access

this fund.

The £300,000 fund is intended to act as a “deal

maker” as part of a funding package that provides

pump-prime funding to the venture, in lieu of the

owners stake or security, which will encourage

and enable other lenders to provide the rest of the

project funded necessary to get started.

Loans of £5,000 - £25,000 will be available over

a period of 6 –36 months on an unsecured basis

to successful entrepreneurs and they will also be

supported with their application to other lending

institutions.

The creative development team will manage

Enterprise City and the Entrepreneur fund with

support from the Regeneration Co-ordination and

accountabilities group.

The project is driven by outcomes rather than

outputs and seeks to establish, over a period a

number of successful, sustainable additional en-

terprises in new areas of business created by en-

trepreneurs from Asian and African communities,

Women and young people.

Entrepreneurs are people who initiate ideas and

convert these into successful innovations and ven-

tures, assuming the risks involved. Entrepreneur

development is not a quick fi x and the challenge

is to develop a spirit of entrepreneurship, fi nd and

develop the entrepreneurs and to convert that into

economic impact.

The successful consortia will be those who are able

to identify a clear approach for participating en-

trepreneurs that can be monitored and measured

against a delivery plan and which will lead to the

direct development of the individual.

The budget is £1.2 million over 18 months. The

Birmingham City Council, Planning and Regenera-

tion Services wholly fund the project.

For further information: City of Birmingham,

Mohammed Zahir,

Tel. +4401213032956, mohammed.

zahir@birmingham.gov.uk,

www.birmingham.gov.uk

38

2

39

SME Meeting in the Congress

Centre in Gijon

Source: Gijon, Arnaud Späni,

Palacio de Congreses

In Spain, apart from the City Equal micro credits,

the City of Gijón also supports entrepreneurship

with the Entrepreneur Micro credits:

Target group: Entrepreneurs and micro businesses

located in Gijón.

Financial investment in working capital not

more than 50% (total amount)

25.000 euros max.

redemption period: 3 years.

Max. fi nancial amount 95%.

4 per cent interest.

Guarantee by the Regional Guarantee Fund (AS-

TURGAR) and support by Enterprise Municipal

Centre.

The originality of this scheme is that working capi-

tal (that is traditionally excluded) is eligible for

funding, which greatly enhances the bank worthi-

ness of the projects.

For further information: City of Gijon,

Isabel de la Huerga Iglesias,

Tel. +34(0)985182954, proyectoseuropeos.

alpee@gijon.es, www.gijon.es

Conclusions concerning the public- private partnership

The ECO-FIN-NET network members, ac-cording to their own local experience have come to the following recommendations on the possible role of the cities:

• The cities should organise partner-ship with other public institutions, in particular the Regional authorities to improve access to fi nance for the small businesses, in particular access to more sustainable sources of funding, putting emphasis on mainstream public fi nance (EC structural funds);

• They can envisage to bring a fi nancial contribution to cover the administration cost of the loans to the small business-es;

• They can also consider to bring a fi nan-cial contribution to fi nancial institutions (micro-credit) in order to cover specifi c local costs (in the targeted less favoured area) such as the costs of opening a local offi ce (or refurbishing existing premis-es);

• They should always negotiate with the private fi nancial institutions so that the public grants and loans are an incentive for private fi nance (leverage effect).

Conclusions concerning micro-credit

For the local authorities interested in devel-oping a micro credit scheme for the micro and small business community in their dis-advantaged areas, this means that:

• There is no point for local authorities in being involved in the operation of such schemes that require specifi c expertise, but rather in giving incentives to existing schemes so that they are more active in the disadvantaged areas.

• These incentives should be negotiated so that the public support strictly ap-plies to the concerned businesses in the area: for instance the ECO-FIN-NET pro-poses that a branch offi ce be opened in the area.

2.2.4 Venture and seed capital

OECD FEED experts indicate that not only access to credit is important for small and micro-businesses, but also access to capital (LEED 1996).

In his comprehensive survey on SME fund-ing sources, C. Saublens / EURADA makes a distinction between:

• Seed capital: necessary to fund a project before the products or the services are marketed,

• Venture capital: investment in equity during the start-up or the growth phase of a business,

• Informal venture capital (business an-gel): venture capital by a private indi-vidual,

• Early stage fi nance: for investments to launch a product or service,

• Mezzanine: combination of equity and loans (generally with high interest rates),

• Corporate venturing: venture capital by existing companies for businesses set up by their own staff or in strategic ac-tivities (Saublens 2004).

Figure 6 indicates clearly that the vast ma-jority of projects fall in the fi rst three cat-egories, especially in disadvantaged areas but suitable instruments for bigger projects should also be accessible due to the very high potential of growth and job creation they imply. This means that local authorities need to be directly involved in the majority of cases (fi rst three categories) and can only facilitate access to other sources of funding when needed.

Unfortunately Saublens also indicates that in reality the provision of funds is not tar-geted towards start-ups and very early stages of business development but rather on existing businesses that have a project of growth. As a consequence, there are far more funds available than funded projects: a survey conducted at the beginning of 2004 on 40 German business angels indicate that less than a quarter of business angels have invested more than 25% of their available funds (Saublens 2004).

In France, the Caisse des Dépôts et Consig-nations-CDC PME, active in seed capital and start-ups, received 2,200 applications for funding, presented 99 projects to the agree-ment Committee who fi nally decided to fund 41 projects.

Such fi gures indicate a very big discrepancy between demand and offer and show a re-ally problematic situation for small entre-preneurs in the access to capital.

For Saublens, this problem is linked to three considerations:

• entrepreneurs and investors have not the same perception of funding: entre-preneurs make little difference between equity and loans;

• entrepreneurs are not prepared to meet investors;

• they have a different perception of inno-vative projects (Saublens 2004).

To address this problem, which is faced in all countries, the current approach is to train entrepreneurs to “investment readiness”. These training schemes include:

• business plan critical analysis;• presentation of funding sources;• types and availability of funds vs. busi-

ness development stage;• investors’ expectations;• project presentation to investors.

Another (and recent) type of access to capi-tal is “mezzanine” funding which is a com-bination of loan and equity: the business receives a loan refundable according to the business returns.

However experience shows that, for profi ta-bility and sustainability reasons the venture capital organisations do not / cannot focus their activity on the small businesses in the less favoured areas.

Figure 6

For the ECO-FIN-NET partner cities, venture capital is hardly accessible to (and designed for) small businesses located in the less fa-voured areas: the businesses / projects are generally too small and the eligibility con-ditions too strict. In the case such projects would be located on the city territory, it is recommended that the local authorities contact the regional/national/specialised venture capital institution involved for a possible tailor made support.

• The local authorities should not raise unfounded expectations with the SME community in publicising possibilities of venture capital that will only apply to a very small minority of businesses.

• They could be partners of specialised venture capital organisations if neces-sary and when required by local busi-nesses (ad hoc case by case agreement). They may envisage a fi nancial contribu-tion to capitalise investment funds (seed and venture capital) for investments in local businesses but also / rather to cov-er the administrative costs of process-ing applications and the management costs.

40

As an example the City of

Vienna has developed the

“Grätzelmanagement” in

each less favoured area (the

2nd and the 20th districts of

Vienna) with their own of-

fi ces, supporting the existing

companies and persons with

their needs, which includes

information about fi nance

and business promotion

schemes.

2

41

Source:

Ville de Marseille 2005

Source of Funding Approximate Amounts in €

Loans (without guarantee) 5,000 to 15,000

Micro-credits 3,000 to 30,000

Business angels 25,000 to 250,000

Seed capital 300,000 to 1,500,000

Start up 500,000 to 2,000,000

Venture capital 2,000,000 to 50,000,000

Source: Saublens 2004

An example of partnership is illustrated by the

City of Leipzig with the local Savings Bank: to-

gether they develop a new project:

Concept Venture Capital Light

In order for a company to maintain a stable devel-

opment, a suffi cient amount of equity capital is

essential.

Small and medium-sized businesses in particu-

lar, however, fi nd it very diffi cult to generate the

required amount of equity. External venture capi-

talists are rarely available for sums below 150,000

euros, because analysis and management costs

are too high to be economically viable in the case

of smaller projects. But the City is interested in

allowing some small projects but with a high

growth potential, to develop in the area.

The public authorities and the chambers of

commerce with the local Savings Bank set up a

venture capital programme for small businesses.

Through an established venture capital company,

investments between 50,000 and 100,000 euros

will be analysed and, once paid out, managed.

The inspection of an investment as well as its

management requires the necessary resources.

Costs are estimated at approx. 5,000 euros as

a one-off payment for the inspection and then

for each subsequent year. Given an investment

of 75,000 euros and a running period of 5 years,

these costs alone are equivalent to interest rates

of 8.0%. Additionally, clients have to cover inter-

bank rates (currently approx. 6.5% p.a.), general

risk (approx. 7.5% p.a.) and other costs / specula-

tion of venture capital management. Especially

for very small companies, that is far too much,

especially since these companies cannot expect

any exit returns from the sale of shares.

There are three possible models for escaping this

circle:

1. The public authorities cover 50% of the costs

for investment inspection and management

2. The public authority makes available capital

for specifi c purposes below the current standard

interbank rates

3. The public authorities take on part of the risk

from the investment through an indemnifi cation

clause / guarantee.

From one perspective, option 1 is to be preferred.

It would result in directly promoting individual

companies that are of economic interest.

Investment 50,000 – 100,000 euros

Funding

Basic funding I 1.000 EUR, fl at rate

Further funding II 2.500 EUR, fl at rate

Management funding III 50% of ongoing costs

min. 750 euros p.a.

max. 2,500 euros p.a.

Running time 5 – 10 years

Basic funding I will be paid as a fl at rate to the

investment management. Additionally, manage-

ment receives money for the subsequent detailed

investment analysis. This takes place after a posi-

tive vote during phase I and general agreement

with the client.

Result:

For the fi rst time, small businesses are able to

develop with a solid fi nancial structure by gaining

access to investment capital that is customary in

the market. Furthermore, through its close col-

laboration with the investment management, the

company will also have access to valuable eco-

nomic and strategic information.

For further information: City of Leipzig, Offi ce for

Business Development, Brigitte Brück,

Tel. +49(0)3411235841,

brigitte.brueck@leipzig.de, www.leipzig.de

S-Unternehmensbeteiligungsgesellschaft der

Sparkasse Leipzig mbH,

Holger Grentzebach, info@s-beteiligungen.de,

Tel. +49(0)3419867241, www.s-beteiligungen.de

42

City of Leipzig

2

43

In the UK, an interesting and innovative ad hoc

instrument has been developed by the City of

Birmingham, targeting specifi c ethnic and reli-

gious groups:

The West Midlands Inclusive Fund

Entrepreneurs within certain disadvantaged com-

munities, particularly Pakistani, Bangladeshi and

Indian, are prohibited by cultural and religious

reasons from accessing interest based funding.

This represents a signifi cant barrier to the es-

tablishment, development and growth of SMEs

within those communities, leading to the social

exclusion of those groups, which are already

subject to high levels of deprivation.

The range of non-interest based products cur-

rently available within the UK does not cater for

the needs of those seeking self-employment and

business development and growth.

Birmingham City Council commissioned the Uni-

versity of Birmingham to undertake research to

establish the need and potential for non-interest

based fi nance (report sent to AWM).

The West Midlands Inclusive Fund will provide

non-interest based loans and equity funding, with

the return to the fund linked to profi t generated

by the business. It fi lls an identifi ed gap within a

niche market and complements traditional inter-

est based mainstream sources of funds.

£1.5M project running from March 2003 to March

2005:

As a 2-year pilot the fund will support both new

and existing SMEs with non-interest based loans

and equity funding of up to a maximum of £60k,

with the return to the fund linked to profi t gener-

ated by the business.

The capital element of the loans will be repaid

between years 1 to 3. The return on the loans will

be linked to the profi ts generated by the business

and the agreed percentage return on profi ts will

be payable between years 3 to 5.

The equity investments will take the form of or-

dinary shares and preference shares. The capital

element in the preference shares will be repaid

back between years 1 to 3. The agreed percentage

return in terms of profi t will be payable between

years 3 to 5.

Investments in terms of ordinary shares will re-

main in the business and be repurchased at mar-

ket value between years 3 to 5.

Business advice, counselling, consultancy and

mentoring support will reinforce the fi nancial

investments in both new and existing SMEs. This

element of the project will be delivered through

the regional business support organisations.

All investments will be based upon demonstration

of adherence to the principle of non-interest fund-

ing, viability, growth and job creation.

The capital repayment and profi t generated from

both the loan and equity investments will be

re-invested into West Midlands Inclusive Fund to

ensure that the fund is sustainable and revolving.

The project will be delivered through the creation

of a new legally constituted vehicle called the

West Midlands Inclusive Fund Ltd, a non-profi t

making Community Development Financial Insti-

tution.

The project is partnership between the city as the

lead and accountable body, Regional Business

Links including Birmingham & Solihull Business

Link, National SBS Phoenix fund and the private

sector.

The West Midlands Inclusive Fund will run along

side and compliment the interest based products

offered by ART and the main stream banks, which

to do not currently cater for this niche market.

Both ART and the banks will act as local gateways

for the fund by providing cross referrals.

As a pilot the programme is designed to assist

some 100 new and existing small businesses

within West Midlands objective 2 area focussing

on key regeneration areas within Birmingham.

Some 80 jobs will be safeguarded and a minimum

120 new jobs created within the businesses as-

sisted.

For further information: City of Birmingham,

Mohammed Zahir, Tel. +4401213032956,

mohammed.zahir@birmingham.gov.uk,

www.birmingham.gov.uk

45

3

2.3 Advisory services and training schemes

All these support instruments require to be promoted for the small business communi-ties at local level to accept them and then to decide to make use of them. Once the busi-nesses have accepted to use them does not mean that they can easily follow the imple-mentation procedure nor that they have the required expertise to use them. So the best technically designed support instruments will only be successful if they are joined with promotion campaigns (long lasting), advi-sory services and training schemes gener-ally understood as non fi nancial services and network support.

These instruments will be described in the following chapter but if the cities want to bring effi cient and consistent support, they should also consider as a complementary package:

• fi nancial contribution to existing advi-sory support schemes reserved to local businesses,

• fi nancial contribution to training schemes (investment readiness) implemented lo-cally,

• organising local team of advisers,• fi nancial contribution to small business

representative organisations to hire staff specialised on the disadvantaged area (equivalent of the support scheme developed by the French Ministry of Economy to encourage the Chambers of Commerce in hiring specialised staff in rural areas- 3-year decreasing fi nancial aid): the ECO-FIN-NET indicates that this type of incentive may not be suffi cient to induce the Chambers to hire additional staff in some countries, but see inter-esting perspectives for this procedure in particular in the new Member States. The condition for effective implementa-tion is a real partnership between Cham-bers and paying local authorities (and good monitoring of implementation).

3 Fostering the SMEs’ Access to Finance by non-fi nancial services and network support

Cities have several possibilities to enforce and stimulate fi nancial incentives for SMEs, as it is mentioned in the previous chap-ter. Next to this, cities are in many ways in charge of creating non-fi nancial services and network support to SMEs. Non-fi nan-cial services and network support are an important part of cities’ policies throughout Europe. In this chapter fi rst the defi nition of these non-fi nancial services and network support is given.

Paragraph 3.2 highlights the problems en-trepreneurs experience with these services.

The main problem is non use, which is caused by • Lack of identifi cation of the needs of an

entrepreneur; • Diffi culties in fi nding a service provider; • The content of the serviced offered; • The condition of the service delivery.

Paragraph 3.3 highlights the challenges ad-dressed by the cities whilst delivering serv-ices. Cities are concerned with questions like:• How to reach the entrepreneurs? How to

meet their demand and requirements? How to raise awareness for the support services?

• How to improve the (unity of) supply? What is the best approach of offering services to entrepreneurs? How to or-ganise the work of service providers?

• How to improve the collaboration with fi -nancial institutions in order to strength-en the effectiveness of non-fi nancial support services?

• What is the best support package and variety of services and network support offered to entrepreneurs?

• How to ensure a broader integrative package of support? What is the best overall approach?

• How to sustain fi nancial resources for support services?

Paragraph 3.4 sums up all sorts of sugges-tions and solutions answering these prob-lems and issues.

3.1 Variety of support services

There is a big variety of support services of-fered by cities to their local businesses. For a common understanding of the type of non- fi nancial services and network support the following defi nition is used6:

A Information / Orientation

SMEs are serviced with the supply of ad-equate information about several different aspects of their activities and entrepreneur-ship. SMEs and persons who want to start up a business are informed about the neces-sary steps towards a viable enterprise. In-formation is given about taxes, regulations and about the labour market and the quali-fi cation of personnel, and, most important, about ways to get fi nance (grant schemes etc). Service can also consist of an addition-al / previous check up of the credibility of the entrepreneur.

In Vilnius, the local grant scheme project

launched by the Municipality in 2003 appeared

to be too complicated for many small busi-

nesses: so in 2004, the Municipality introduced

a new initiative for fi nancing new workplace

creation expenses. The project was transformed

and simplifi ed to give the most vulnerable busi-

nesses a chance to have access to it.

The idea of the new initiative is to allocate a

fi xed amount of 290 Euro for each work place

creation, without asking any detailed explana-

tion or business plan. Eligible enterprises for

getting this grant are enterprises employing up

to 49 employees, registered in Vilnius, having

one year profi table performance and no debts

to State Budget, no debts to State Social Insur-

ance Fund Board and no violation of previously

signed agreements with Vilnius City Municipal-

ity.

The funding (fi xed grant of 290 Euro per created

workplace) was provided to cover the costs of

equipment needed for manufacturing or other

activities and acquisition expenses of licences

required to create new workplace or to employ

new staff.

The created workplaces have to be maintained

at least for one year after the person has been

hired. The hired staff must be registered in the

Vilnius Labour Exchange Offi ce.

Generally application procedures are perceived

as too complex by the small businesses who

need advisory service to prepare their applica-

tions. The Vilnius City Municipality – VCM – is

organising almost free consultancy services for

SMEs since 2002. So in 2003, when the project

was launched, the candidate entrepreneurs

could obtain consultancy on economical, legal

or any other questions.

Since 2002, the Municipality has a programme

for training and advising entrepreneurs. Train-

ing and consultancy for entrepreneurs is pro-

vided by companies, specialising in this fi eld.

Companies were selected through simplifi ed

open competition. Evaluation of tenders was

based on economical effi ciency and price. 50 to

80% of expenses are covered by Vilnius City

Municipality. 20 to 50% has to be fi nanced by

entrepreneur.

For further information: City of Vilnius,

Danute Maksimaviciene, Tel. +37052112210,

danute.maksimaviciene@vilnius.lt,

www.vilnius.lt

44

Handicraft fair in Vilnius

45

6 In annex III.1 some specifi c

defi nitions of networks are

listed.

The Vienna Business Agency provides a variety

of offers to their customers (start up’s as well as

existing entrepreneurs in Vienna).

The Business Service (Wirtschaftsservice) is the

fi rst contact point for Viennese companies and

(potential) start up’s.

An own Ombudsstelle solves problems occurring

in daily business life.

The Business Service in the districts (Regionales

Wirtschaftsservice) offers its service directly

at the entrepreneurial site in all 23 districts of

Vienna. This mobile service is in charge of quick

and non-bureaucratic support and helps to solve

the local problems. This initiative is a common

project of the Vienna Business Agency and the

Vienna Employment Promotion Fund (Wiener

ArbeitnehmerInnen Förderungsfonds). 11 persons,

each of them in charge of 1 to 3 districts, deliver

services in:

Investment matters

Information about the economic aid program

Information about available plots for companies,

shops and retail space

Information about training possibilities and quali-

fi cation opportunities for the employees

support in staff recruiting

Interface to the city authorities

The women’s service (Frauenservice) is specially

addressed to female start up’s and entrepreneurs.

For further information: Vienna Business Agency,

Burkhard Weiler, Tel. +43(0)14000-86796,

bweiler@wwff.gv.at, www.wwff.gv.at

Orientation can be offered in order to en-large the scope of the entrepreneur (assess-ment of business idea; business idea devel-opment). Orientation helps to fully realise the structure, problems and challenges of entrepreneurship itself and certain business ideas. The service provider gives therefore also a place where people are (re-)directed to other institutions where specifi c services are supplied.

Orientation does not mean that just any idea is embraced and brought to a viable project that in the end could be fi nanced. It is just as worthwhile to assess project ideas and business plans in a way that the entre-preneur is stopped before he actually starts with an unviable plan. Than it is the service provider to prevent the entrepreneur from making too much loss and create fi nancial and professional deceptions for him self and other (business-) partners.

B Training / Qualifi cation (Skills, Manage-ment)

Training of the entrepreneur is the most common service in many different cities. An entrepreneur is offered specifi c courses in fi elds like marketing, promotion, ICT-use, e-commerce, bookkeeping etc. Mostly the entrepreneur has to pay a part of the costs. Depending of the specifi c service provider sometimes special targeted courses are or-ganised relevant for a certain sector (like tourism) or for a certain type of entrepre-neurs (like retail) as entrepreneurs prefer these tailor-made courses and services.

In respect to the two categories mentioned above, there is a growing tendency to sup-port SMEs not only with an active service given by a service provider, but to create more self-supporting systems where the entrepreneur is introduced in networks, or helped to create networks where the en-trepreneur can benefi t from contacts with other SMEs. In the same category one can see that there is a growing attention for coaching and mentoring services, which is not aimed at a certain supply of service but much more concentrated to help the entre-preneur to help him/her self.

C Coaching / Mentoring

Coaching and mentoring are relative less known forms of services. After an intake by the service provider a contact between a mentor and mentee (the entrepreneur) is established. The mentor is selected on the base of the specifi c question of the mentee.

This approach ensures a good demand ori-entated form of service. The costs are rela-tively low when retired experts are used as a mentor.

The importance of the coaching technique is also that the entrepreneur is learning - com-pared to traditional forms of training - at a deeper level to cope with his/her real chal-lenges and to create alternative strategies and possibilities.

D Network Support

Network support is a specifi c form of service aiming at creating business networks be-tween entrepreneurs to create synergy be-tween them. These are for instance possible through chances for business-to-business transactions, common promotion and effec-tive (common) use of means (administrative use, personnel and other types of network synergies). Sometimes these network sup-ports are combined with incubators or other investments in premises of businesses near to each other. But one can also see networks on a lager scale, for instance the whole ur-ban area. At regional level one sees support

of networks that are aimed at the strengths of the region. Some cities perceive to con-nect these regional cluster networks with local / urban networks.

Network support depends rather heavy on the type of business. In short the differenc-es are8:

• Company nature (industry or branch, of-ten linked to other issues, such as site) defi nes the type of relations entrepre-neurs seek;

• Company age (starting, re-starting, or established) defi nes the eagerness for new contacts;

• Company size defi nes sometimes the reach of the contacts;

• Personal characteristics of the entrepre-neur (age, training, and ethnicity) enforce the general trends of type of businesses and their needs of network support.

• External conditions (economic tide; gov-ernment initiatives) infl uence effective-ness of network support.

46

Entrepreneur supported by

CPEM in Marseille

Source:

Ville de Marseille 2005

Marseille – Service

d’Amorçage de Projet (SAP)

In Marseille the experience

with the SAP project led to a

deep penetration of advice

to entrepreneurs and people

with ideas to start a busi-

ness. The goals were:

• To reach a larger group

of entrepreneurs and to

support those with good

basic individualized

information.

• To stimulate (or dis-

courage) certain project

ideas on their business

viability.

• To realize a level of

competence for every

entrepreneur.

• To reframe the

(negative) perceptions

of entrepreneurship by

(certain parts of) the

public.

• To take away possible

obstructions by advisory

organizations and

fi nancing institutions, by

facilitating the elaboration

of the business plan.

For further information: City

of Marseille, Pierre Chaillan,

Tel. +33(0)491990163,

pchaillan@mairie-marseille.fr

www.marseille.fr

3

47

Team of the quarter manage-

ment in Vienna

Source: Grätzelmanagement.

Wien20.WWFF

7 “Grätzel” is an Austrian ex-

pression for quarter.

8 Annex II.2 gives a full descrip-

tion of the nuances in types of

businesses.

Gera - SME network

“SME network” is a project on cooperative

networks between similar/ complementary

enterprises in deprived areas. The networks are

formed by an external organisation (BIEGE 21)

fi nanced by the City of Gera and the European

Community Initiative URBAN. These networks

consist of a small number of fi rms, which are

helped by the external organisation during the

seeding phase. The SMEs must in the end sus-

tain their own network. There are now networks

on themes like: textile/fashion; hairdress-

ers/stylists and building/construction. These

networks are active and viable in their purpose,

even after some years of existence.

Good practice element:

In the range of network support projects this

project is particularly of interest because of the

fact that it produces sustainable (still active)

networks. A small sector network is formed;

entrepreneurs are empowered to grow and

sustain their business. There is care about the

complementarities of the entrepreneurs, and

the group dynamics (such as leadership by the

entrepreneurs). It is based upon and uses the

strength of the local economy. Thus, it enforces

the local economy-structure.

For further information: City of Gera,

Thomas Seidel, Tel. +49(0)3658381195,

europabeauftragter@gera.de, www.gera.de

Vienna - Grätzelmanagement

Vienna has introduced a so called “Grätzelma-

nagement”7. This neighbourhood management

is an offi ce in the neighbourhood to coordinate

the (integral) urban renewal activities. For

the economic elements Grätzelmanagement

includes networking activities for business

working groups. By visits and explaining pos-

sibilities, activities and plans of the entrepre-

neurs are stimulated to participate and once

a network is formed this is followed. These

(individual) plans should be accepted by the

networking group. Once groups are formed,

they are helped fi nancially in order to start their

networking group to function. The members of

the group must decide themselves on the spe-

cifi c allocation of the budget.

Good practice element:

Network stimulation. Networks of entrepre-

neurs are stimulated in an interesting way. They

are tempted to form a network and are given

room to formulate their precise activities and

allocate the fi nancial support themselves. This

creates productive group dynamics.

For further information: Vienna Business Agen-

cy, Burkhard Weiler, Tel. +43(0)14000-86796,

bweiler@wwff.gv.at, www.wwff.gv.at

Leipzig – SME networks

SME network is a project on cooperative networks

between similar/complementary enterprises in

deprived areas. The networks are formed by an

open call by an external organisation fi nanced by

the City of Leipzig and the European Community

Initiative URBAN. The types of networks to react

to the call were therefore not predictable before-

hand. Two out of three networks are a success in

terms of the fact that they are still active also after

the project period. In these terms there is only an

initial investment with a sustainable effect.

The networks of SMEs have a proven track record

of activities between the SMEs in the network.

These activities include amongst others: presen-

tation at fairs and projects, cooperation on R&D-

activities, acquirement of an assignment for a

group of SMEs, set up of an internet-portal.

Besides an open call for network support, the

URBAN organisation also organises regular meet-

ings with 20 to 30 entrepreneurs in the URBAN

funded area. From this group networks of enter-

prises are evolving, stimulated by several serv-

ices that are offered (like qualifi cations trainings,

and fi nancial incentives). One network consists of

IT-oriented fi rms.

A special element in this project example is the

prescription that the SMEs in the URBAN area

reacting to the call should form a network with

SMEs outside the URBAN area. This is part of the

Leipzig strategy to create a relation between the

(low) economy in the URBAN area and the whole

regional economy.

Good practice element:

Growing group dynamics. The importance of

regular meetings where entrepreneurs meet

each other and stimulating within this process

the constitution of networks is very relevant and

proven successful in Leipzig. The organisation

uses the existing incentives (services and also

calls for projects by other governments) to stimu-

late group forming. Therewith the organisation

does not need much extra money to create this

dynamic.

For further information: City of Leipzig, Offi ce for

Business Development, Brigitte Brück,

Tel. +49(0)3411235841,

brigitte.brueck@leipzig.de, www.leipzig.de

3.2 Existing problems seen by the entrepreneurs

After having defi ned what non-fi nancial services and network support are from the ECO-FIN-NET perspective, the network cit-ies focussed their discussions on the prob-lems that are existent regarding the use and take up of support services. Entrepreneurs were asked to refl ect on support services in a European survey by the DG Enterprises. The ECO-FIN-NET-cities have considered these issues also from their own experi-ence, although seen from the supply side. The ECO-FIN-NET-cities have also spoken to entrepreneurs about these fi ndings. These entrepreneurs gave the network similar re-fl ections on the issues of services and ne-tork support.

The results of this survey and the problems as they are seen by the entrepreneurs are described in the following.

Low participation rate

DG Enterprises found out that the partici-pation rate in support services among Eu-ropean micro, small and sole proprietor’s businesses is quite low. Only 20% of the smallest enterprises in the European Union have utilised support services during the past fi ve years. This share further declines with decreasing size of an enterprise, rang-ing from a participation rate of 15% for sole proprietors to 35% for small enterprises (10-49 employees). On the other hand, more enterprises in the start-up phase use external support than their mature counter-part. However, due to the size-pattern and average age of the smallest enterprises in Europe, the actual users of support serv-ices are micro businesses and in the mature phase (DG Enterprises 2002a: 19f).9

Four reasons for non use:

In general, four main reasons for not using support services can be identifi ed:

1. The lacking identifi cation of needs;2. The diffi culties in fi nding a provider; 3. The content of the service;4. The conditions of service delivery.

These are the challenges providers of sup-port services for SMEs have to cope with in order to motivate SMEs to participate.

Lacking identifi cation of own needs

SMEs do not see any need for external help. 54% of the enterprises indicate “no need” as the main reason for non-utilisation. Among start-ups only every third enterprise claims not to have any need for external help. Among sole proprietors the share of enterprises not feeling any requirement for external help amounts up to about 60% (DG Enterprises 2002a: 23f).10

This attitude might be explained by the ex-perience that many small enterprises, be-cause of their heavy involvement in day-to-day business, may loose the sense of per-spective when assessing their own needs.

This also relates to the idea that many en-trepreneurs are unaware of the possibili-ties to improve their business. In terms of a learning process the entrepreneurs are in the state of unconsciousness being unable to top entrepreneurship.

Lack of information on support services

SMEs lack information in order to fi nd a service provider. Specifi cally smaller busi-nesses encounter diffi culties due to their limited personnel and fi nancial resources. According to DG Enterprises (2002a) 33% of the enterprises indicate as the main reason for not using support services the lack of awareness on the existence and availability of support services. Especially enterprises in the start-up phase do not participate in support services due to a lack of information although a relatively high share indicated to have need for external help.

Businesses seem to prefer a local and per-sonal approach. They are looking for sup-port services mainly at local or at regional level and the two most welcomed promo-tional methods are either direct contacts or personal visits.

Satisfaction with offered types of services

About a quarter of the SMEs did not get service that fi tted their needs. As outlined above SMEs do not express a high need for services. However, it has to be differentiated between the different types of services. For example the demand for fi nancial services, professional information services, and ad-vice and consultancy is clearly higher than the one for specifi c training courses or the provision of facilities. And again there are differences between enterprises of different size: Small enterprises have a much higher

demand for training courses than micro or sole proprietor’s businesses. In contrary, one-stop-shops providing general informa-tion are most popular among sole proprie-tors (DG Enterprises 2002a: 33f).

“Overall, enterprises express a strong need for tailor-made support services that con-sider the differing needs of different types of enterprises” (DG Enterprises 2002a: 38). The missing concentration on specifi c tar-get groups is emphasised as one main rea-son for the low utilisation rate of support services (DG Enterprises 2002b-f). Service providers should react to the needs of the enterprises by providing distinct packages of services for the different size classes, sectors or phases of development (DG En-terprises 2002a: 38).11

Quality of support services

The last reason enterprises give for not us-ing support services is that there is often an asymmetry between the type and qual-ity of the delivered service and the actual needs of the entrepreneurs. Thus, it is vital to improve the conditions of service delivery in order not to deter potential participants who are generally convinced of the useful-ness of external help and are likely to use support services regularly (DG Enterprises 2002a: 39).

The level of satisfaction varies by the dif-ferent facets of support service delivery: More than 80% of the enterprises that have made use of support services during the past fi ve years express satisfaction with the communication with the service provid-er, the professionalism of the staff as well as with the quality of the service. Compa-ratively less satisfi ed are enterprises with the understanding of their business by the provider and with the effect the service had on the enterprise (DG Enterprises 2002a: 39f).

To assess the quality of services the most important criteria for SMEs are that the “delivered” service was the one which they had “requested”, that the agreed upon budget and deadlines are met and fi nally that the “delivered” service suits the “actual needs” of the fi rms (Unioncamere 2000: 40).

Firms show a high sensitivity to the price, “due to the diffi culties in estimating the value added by the needed service, which distorts the perception of its price/value ra-tio” (Unioncamere: 39). However, there is a

Rotterdam-Delfshaven. Network support

In the process of building, maintaining and

furnishing of housing, a large number of smaller

businesses or self-employed craftspeople fi nd

a living. Within the district of Delfshaven their

number is estimated at around 150; some 20%

of the total number of enterprises. These in-

clude branches as divers as plumbers, interior

designers, architects, builders and kitchen

suppliers. Sometimes these have to compete

which each other, more often they may work

together or meet at sites, and always they are in

need of similar information (rules, regulations,

opportunities).

Asked by two of them COiD has in 2005 taken

the initiative to bring together entrepreneurs

from the sector in a “Building Circle” (Bouwk-

ring Delfshaven).

Objectives of the circle:

Building up relevant networks

Promoting cooperation

Bettering changes by jointly offering on larger

projects

Offering platform for acquisition of information

and advise

Joint promotion via COiD-website

Participation is limited to those enterprises

located within the district of Delfshaven, that

work on a small scale (not exactly defi ned), with

an owner/entrepreneur who is a craftsperson

(no managers, but people on the work fl oor

themselves). Membership is by introduction

only.

Twenty-fi ve enterprises now participate at bi-

monthly (themed) meetings at the premises of

one of the members; the goal is to double that

number by the end of 2006.

Pitfalls: interior designers, architects etc are

eager to participate (and have to be limited),

craftspeople like plumbers, painters, carpenters

etc are much harder to get motivated. On the

whole they have enough work and are not used

to this kind of networking. Equally important:

although the intention remains that the network

will in due course be able to sustain itself, it

will never be realised. Without external support

(knowledge, organisation etc) it will not survive

a second year. Funds should be made available

for continuous support by an agency like COiD.

The success of the Building Circle has led to an

similar demand from another group of entrepre-

neurs: the Creative Circle Delfshaven.

For further information: Werk in West,

Benji de Levie, Tel. +31(0)104762223,

delevie@werkinwest.nl; delevie@coid.nl,

www.coid.nl

48

Meetings of entrepreneurs in

Rotterdam-Delfshaven

9 The participation rate var-

ies between the EU-member

states. It is particularly high in

the Netherlands (34% of SMEs

have participated in support

services in the last fi ve years).

The lowest participation rates

are found in Greece (6%) and

Norway (3%). The French par-

ticipation rate lies slightly

above average while in Germa-

ny the participation is equal

to the EU average (20%) (DG

Enterprises 2002a: 22).

3

49

The City of Gera has solved

the problem of defi ning

needs through the network

the service provider sup-

ports. The question of how

the needs are covered by

the service organisation is

answered by the fact that the

SMEs in the network together

defi ne their needs (with the

help of the organisation) and

therewith services delivered

are better matched to the

demands.

In Rotterdam-Delfshaven

the needs of the entrepre-

neur are met by the men-

tor through coaching. The

problem if and how the

(unconscious) needs of the

entrepreneur are met is

therewith nearly not present

or relevant.

10 Especially low levels of need

for support services are ex-

pressed in Italy, in the United

Kingdom, Finland and Spain,

whereas in Germany and

Greece comparatively few en-

terprises claim a lacking need

to be the main reason not to

participate in support services

(DG Enterprises 2002a: 24).

11 Annex II.2 contains a broader

description of the relevance of

the type of branch a service is

provided for.

strong link between the price of a support service and the perception of its quality by an enterprise: Free services often imply that

the receiver has lower expectations and therefore is more satisfi ed afterwards (DG Enterprises 2002: 42).

3.3 Challenges from a city perspective

The previous chapter showed that entrepre-neurs have diffi culty in getting services and network support, due to the lacking of the identifi cation of the needs, the diffi culties in fi nding a provider, the content of the service and the conditions of service delivery. The ECO-FIN-NET-cities acknowledged these is-sues. They incorporated these issues in the following questions:

1. How to reach the entrepreneurs? How to meet their demand and requirements? How to raise awareness for the support services?

2. How to improve the (unity of) supply? What is the best approach of offering services to entrepreneurs? How to or-ganise the work of service providers?

How to improve the collaboration with fi -nancial institutions in order to strength-en the effectiveness of non-fi nancial support services?

3. What is the best support package and variety of services and network support offered to entrepreneurs?

4. How to ensure a broader integrative package of support? What is the best overall approach?

5. How to sustain fi nancial resources for support services?

In this paragraph the challenges from the city perspective are addressed. The answers and solutions to each of the challenges are assembled in paragraph 3.4.

1 How to reach entrepreneurs, to meet their demand and to raise awareness?

A renowned problem is the question how to reach all possible entrepreneurs who are in need of service or network support. Many service providers fi nd it diffi cult to reach the entrepreneur. Especially the people who are thinking of starting up a business are hard to track down. Entrepreneurs do not under-stand the personnel of the service providers when the personnel’s cultural language is not identical to that of the entrepreneur. In some cities the service provider is part of the local government. These organisations might have diffi culties in reaching the en-trepreneurs when they have low trust in the government. Sometimes the mere distance of the location of the service provider to the target group might cause diffi culty to reach this group.

The cities and their service providers see themselves confronted with effective but expensive methods to reach entrepreneurs and therefore have to judge a balanced ap-proach which leaves them with a satisfac-tory result for a reasonable fi nancial effort. There is a need of having an overview of all possible methods and tactics in reaching the entrepreneur.

2 How to improve the (unity of) support supply?

Cities are often considered to oversee the whole spectre of suppliers of services and network support. This is often not fully the case, given the wide variety and origin of many service providers. In many cases cit-ies are not in control of the service provid-ers. Most cities sustain one or two service providers, but besides these there are other service providers active in the city or region. Often these service providers have different niches of entrepreneurs they help and have a specifi c toolbox. Some of these services are initiated at national level by a ministry or by a societal group or by market sector initiatives. In regions, the Chambers of Com-merce or ministerial agencies are sometimes stimulating service providers.

This offer of different services does not im-ply that there are no mazes in the network. For instance, sometimes regular institutes like the Chamber of Commerce are absent in deprived urban areas12.

The variety sometimes troubles the cities in terms of managing of an effective coordina-tion in delivering none necessarily double services and avoiding waste of time for the entrepreneur. At the other hand the variety delivers also a spectrum that deepens the service for specifi c groups, which some-times is not deliverable when the service would be ‘centralised’.

The question for many cities is thus what the best way of offering of services might be and how the work of various service provid-ers could be organised.

3 How to improve the collaboration with fi nancial institutions?

Despite the fi nding that most banks or other fi nance institutions are aware of the neces-sity of services and network support to im-prove and enforce the qualifi cations of the entrepreneur, the collaboration between banks and service providers is in most ECO-FIN-NET cities not a common practice. It is

50

3

51

Marseille – Service

d’Amorçage de Projet (SAP)

The SAP project delivered

the implementation and

fi nancing of 60 SMEs in the

neighbourhood Belle-de-

Mai. Between 2003 and

2005, more than 600 inhabit-

ants of the neighbourhood

have been welcomed, and

are given advice orientation

on their needs and interests.

The service is provided by

one consultant.

Centre for entrepreneurs in

Rotterdam-Delfshaven

12 In the Netherlands the Cham-

bers of Commerce of the four

biggest cities acknowledged

their failure to reach the

(mostly ethnic) entrepreneurs

in the urban areas. This led to

a project “Work in the Neigh-

bourhood”, in which entrepre-

neurs were actively searched

and reach out for to provide

them with advice and help.

Rotterdam-Delfshaven - MentorRaad

The MentorRaad project is a coaching orientated

project and delivers besides this also some net-

work support in urban areas. It uses experienced

(often retired) entrepreneurs and managers to

coach the entrepreneur (in all relevant stages of

the lifecycle of his fi rm). These people are select-

ed to the extent that they are trusted by the target

group and have adequate personal contacts. A

large number of mentors is recruited through

“ambassadors” with clubs like Rotary’s and Li-

ons, the Chamber of Commerce, district councils

and two sponsoring fi rms.

Entrepreneurs that are interested and can clearly

state why they need the support by a mentor; and

indicate that they are open to advice and support,

are invited to an intake interview with the project

coordinator. This is an experienced business

adviser who makes a sketch together with the

entrepreneur of the support needed and the cri-

teria the mentor must preferably meet. With this

information the project coordinator commences

a search for a suitable mentor who represents

added value in the specifi c situation. When found

the three parties meet again to see whether a

“click” can be made between mentee and mentor

and to agree on goals to be met, ways of working

together, communication, estimated time needed,

feedback etc.

In order to reach as many as possible prospects

out of the multi ethnic business community in Rot-

terdam’s poorer neighbourhoods, MentorRaad

uses a wide range of communication methods

including personal approach and mouth to mouth

communication. Through (themed) meetings the

entrepreneurs (‘mentees’) have the opportunity

to meet other entrepreneurs and the constitution

of networks is facilitated. The project is targeted

at different groups according to the city districts

policy priorities (varying from specifi c branches

in retail to start ups). All entrepreneurs are inter-

viewed about their experiences with the Mentor-

Raad project, thus giving information to improve

the mentoring and network activities. Apart from

this in some districts like Delfshaven external

evaluation is executed.

Good practice element:

Feedback through interview and external evalu-

ation.

The project is evaluated externally in some dis-

tricts and uses regular held interviews with the

entrepreneurs as a form to get feedback for the

service providers and other specifi c information

about the needs of the entrepreneurs. It gave the

information that most entrepreneurs are not seek-

ing for fi nancial help, possibly because they do

not expect to get these types of services anyway.

Use of deep rooted local expertise to enhance

acceptability of mentoring advice.

Much attention is given to the necessity that the

mentors are to be trusted by the clients. Rot-

terdam-Delfshaven uses retired people (like the

French system ECTI) and still active ones, but pays

also attention to the cultural bridge between the

mentors and the mentees. A good reception of

the coaching activity is a very important point to

assess the success of the project. So mentors are

selected with great care.

Needs are defi ned with entrepreneur through

mentor.

Like other mentoring and coaching projects the

needs of the entrepreneurs are met by the mentor.

The problem if and how the (unconscious) needs

of the entrepreneur are met is therewith nearly

not present or relevant.

Local priorities are integrated.

The MentorRaad is a good example of a project

delivering a sort of service which is adaptable to

specifi c (policy) needs. It therewith can benefi t

from subsidy by various local districts for each

particular policy goals, like mentoring service

only for start ups, ethnic SMEs and so on. This

makes the relevance for each political decision-

making and fi nancing body larger and therewith

more sustainable.

For further information: Werk in West,

Benji de Levie, Tel. +31(0)104762223,

delevie@werkinwest.nl; delevie@coid.nl,

www.coid.nl

obviously a question of how to organise a good collaboration between service provid-ers and banks. Service providers are often focussed on the clients and therefore have fewer eyes for the fi nancial institution as partner in the production line. The relation between banks and the service providers or their commissioners is weak, which might be explained by the fact that mostly public funds are used to fi nance these services and network support.

Also banks show not much initiative to ask from their perspective to help to reduce the handling costs and risks.

4 What is the best support package of services and network support offered to entrepreneurs?

There is an emergent need to clarify the whole package of services and ‘sketch an ideal picture’ of the offer to entrepreneurs that service providers should take care for. There is a need for such a picture, as the ECO-FIN-NET cities are aware of the wide variety of services amongst the cities. This ensemble should provide a ticket to good entrepreneurship and of which access to fi -nance.

5 What is the best overall approach / broader integrative package?

Cities and their service providers are well aware of the full range of possible services and network support. Often they are con-fronted with a historically grown offer by (several) service provider(s). Apart from that through central (European/national) programmes certain extra services exist. Some of these services are instruments for other interrelated policy goals, like empow-erment, employment, urban renewal and regeneration.

Confronted with limited funds (in present and future) cities and the service providers are doubtful what the best mix of services offered is, related to budget and effective-ness and in relation to the various political aims of the programmes. Here the full effect of an integrated urban policy comes into play.

6 How to sustain fi nancial resources for support services?

Apart from one wholly private initiative in France (ECTI) and a nationally initiated project in Gijon (Nautical Station) there is not one service provider that is fi nancially sustainable. Although some payments are required from the entrepreneur in many projects, the main part of the costs need to be covered by the government. In some cit-ies there are local funds, but a considerable amount of the projects rely on fi nancial sup-port by national and EU programmes.

Local funding is in some cases only there as part of the complied co-fi nancing de-mands by EU or national scheme. The costs of these services are apparently a hindrance for cities to fi nance these services totally by themselves. The future developments of the funds in the EU, creates a dark picture for projects.

Target groups and target areas are thereof often picked because of the fi nancial and policy goals set in these fi nancial instru-ments (such as Urban/ Objective 1 and 2 and EQUAL/ADAPT). This guidance given by EU-policies, through structural funds, or other steering instruments has therewith a large impact in local decisions and has to be recognised for the coming budget period.

Allthough these services help to improve SMEs, which are considered as a main con-tributor to the Lisbon goals, a lack of struc-tural fi nancial support from the EU remains an unanswered and intriguing tension.

3.4 Suggestions

Both the European Commission, especially DG Enterprises and DG Regio, as well as cit-ies have recognised the issues mentioned in paragraph 3.3 as key issues to tackle better non-fi nancial services and network support in order to improve the access to fi nance for SMEs. This paragraph tips on adequate so-lutions and other ways of improving better services and network support.

The suggestions are structured along the is-sues addressed in paragraph 3.3.

1 How to reach entrepreneurs, to meet their demand and to raise awareness?

The ECO-FIN-NET cities have considered many methods and tactics to reach the en-trepreneur. These methods are often locally rooted and depending on the local situa-tion. The following highlights are to be men-tioned.

The supply of information is mostly the fi rst contact between the entrepreneur and the service provider. There is a strong necessity to lower the gap between the service pro-vider and the entrepreneur. This is done by offering the service in the very near of the client: in the neighbourhood.

Other solutions to this are seen in cer-tain activities like being present at certain

events in the neighbourhoods, organising ‘entrepreneurs-day’ and visits from door to door in the neighbourhood. Crucial in this respect is that these activities are done by experts who ‘speak’ the language of the cli-ent, in terms of language, culture or type of business.

Of course contact itself is not suffi cient; one has to offer something attractive.

The way the service provider is positioned is another important element in reaching the client. In most cities the organisations that provide the services are often organised at a certain distance to the public authority. Sometimes this is done in an autonomous organisation apart from the municipality, often formed by the local authority in com-bination with other relevant partners (Cham-ber of Commerce, state-banks and so on). Sometimes the whole task is outsourced to a private company that is subsidised to de-liver the services. In some cities these tasks are not outsourced, but than this is still or-ganised in a relatively autonomous part of the organisation of the municipality.

The reason for these organisational ap-proaches is the need to have a strong focus on the target group, to deliver clear and adequate answers and services to their de-mands. Therefore in some cities outsourcing is chosen and external experts are hired. In many cases one uses also people with close ties to the target group.

52

Incubator in Venice

Marseille has with the SAP

project - unlike most other

projects in the ECO-FIN-NET

project – a goal to alleviate

the poverty of the targeted

people in the deprived neigh-

bourhoods. The viability of

the SME is not a priori the

central issue; the empower-

ment, people giving direction

to their own lives, seems just

as important.

3

53

Direct exchange with the

entrepreneur in the URBAN

area Leipzig

A good example of being

present is the SAP project in

Marseille. It is built on the

principle to be as a service

institute as near to the cli-

ents as possible. Therefore

the project offers its services

within the locations of other

existing institutions in the

neighbourhood.

Open discussion with entre-

preneurs

Support of entrepreneurs

with e-services in West

Athens

West Athens - Internet use by SMEs is a good

example how to get in touch with entrepreneurs

on a single ticket.

Through ADAPT and other fi nancial programmes a

project was started to increase the use of internet

by SMEs. SMEs that were not at all known to the

possibilities of ICT-use in their enterprises were

made conscious of the possibilities. A remarkable

change in internet use is achieved. Further a in-

ternet node was produced in order to give SMEs a

platform/ window on the internet. Many SMEs are

online through this project and have a web space

at the node.

The project is clear in its goals and therefore

easy accepted by entrepreneurs where a culture

of trust to the government is not often common.

This creates to the local government new chances

to deliver other services to the entrepreneurs in

future time. The producing organisation is part

of the local community but organised at a certain

distance in order to create as much trust as possi-

ble between the organisation and the SMEs.

Good practice element:

Niche approach: Internet use.

The project is a clear example of a niche approach.

No focus on the whole improvement of a SME,

but a small element of the whole enterprise. This

made it easy to ‘intrude’ in to the entrepreneurs’

world and get contact with the entrepreneur.

Sustainable higher degree of users.

The project can be measured by the amount of

users of the node. This is at a higher level than in

other areas.

Sustained project.

Because of the success of this project West Athens

has decided to maintain this project and fi nance it

after the fi rst (European) project phase.

For further information:

ASDA, Moskos Diamantopolous,

Tel. +30(0)2105745826,

urbact@asda.gr, www.asda.gr

Another reason is that in areas where the government is not much trusted, an ‘inde-pendent’ status of the organisation is es-sential to get the client inside and trust the service provider. For entrepreneurs in the informal economy who might be helped to enter the formal economy, a (quasi-) auton-omous position is necessary to get in closer contact with this target group.

Another relevant way to get in contact with new entrepreneurs is to integrate the ac-tivities of the service providers with broader activities in the neighbourhood by the local authorities. This is mostly concerning urban renewal and regeneration activities.

Of course it is useful to list a number of these methods as they might inspire and create new opportunities for service providers who are confronted with the same problem. The ECO-FIN-NET-cities have identifi ed the fol-lowing “best ways” to reach entrepreneurs:

Individual personal contact

• Personal contacts and mouth-to-mouth contacts (also use meeting places like café-houses, mosques, churches etc.)

• Door to door visits • In the enterprise itself• For start ups: in sport clubs, mosques,

neighbourhood centres• Welcoming visit for newcomers in the

neighbourhood• Use of existing entrepreneurs to get into

contact with others

General personal contacts

• Information days (with entertainment, presence during neighbourhood festi-vals etc.)

• Presentations at trade exhibitions• Specifi c targeted meetings for specifi c

groups of entrepreneurs• Educational exhibitions at school-leaver• Local newspaper (free week issues etc.

(success stories))

Press instruments

• Internet pages / website that is interest-ing enough to visit

• Newsletter (electronic or print)• Magazine send to all entrepreneurs eve-

ry three months• Advertisement in door-to-door weekly • Advertisement in business magazines• Link in other websites• Radio station (to use to reach certain

ethnic groups)• Cooperation agreement with other insti-

tutions in which is stated that they pro-mote the service in their means of com-munication

Presence in neighbourhood

• Visibility of the centre in the neighbour-hood

• Use attraction power of the Urban Re-generation programmes (offer for cheap premises/incubator, subsidies for busi-ness promotion and so on)

2 How to improve the (unity of) support supply?

It is preferred when in a region there is an overview and knowledge of each specialisa-tion of each provider and when this know-ledge can be used in certain cases. Given the variety of the supply in many cities, the city could act as the initiator to bring all service providers together and let them be

aware of each other. The city could organ-ise every quarter or half year a gathering as a networking event for the personnel of the service providers. From that on cities might want to establish a focal point where at least the possibility to redirect clients is available. A focal point should not eliminate particular niche services, because they have an added value that cannot be replaced by central services.

Regarding niche approaches, the City of Gi-jon delivered a good example amongst the ECO-FIN-NET partner cities:

This leads to the conviction that one focal point in the region for entrepreneurs is ad-visable without blocking access to other services directly by the entrepreneur.

The approach mentioned above is in fact an exercise that is led in a top down way. Com-plementary to this, a bottom up approach is possible that also helps to structure the sup-ply of services. This structuring is achieved by the concept of the Business pass, devel-

oped and recommended by the ECO-FIN-NET partner cities. This is a pass that gives entry for entrepreneurs to all kinds of serv-ices. The pass has a list of services offered of which the entrepreneur can make use.

When consulted about this, the entrepre-neur might need a specifi c consultation or access to a certain network to improve his enterprise or his entrepreneurship. These consultation or introductions to networks are, next to his already present skills and prepared work, added to his pass which in the end indicates that the entrepreneur

54

The Viennese Grätzelman-

agement is a good example

of such an integrated ap-

proach; urban renewal, re-

furbishments of the houses,

public space, social measure-

ments, participation efforts

and economic stimulation is

part of the whole policy.

13 FEED: Forum on Entrepreneur-

ship and Enterprise Develop-

ment / UNIDO-OECD

3

55

Two exemplary ways of

dealing with the variety of

services provided in the

city/region:

The introduction of a voucher

system that gives the entre-

preneur the right to access

services might solve the

question of the allocation of

different services to different

entrepreneurs with different

needs. It seems that such a

voucher might also have a

streaming effect towards the

broader variety of services

offered. The City of Vienna

provides a “Training-Check”

to employees. Some German

cities have already intro-

duced the voucher system;

there it is a proven practice.

The City of Grenoble uses the

variety of many (about 40)

service providers, national

or regional, subsidy based

or based on voluntary com-

mitments. Where relevant it

knits the services together

by additional fi nancial incen-

tives. In this construction

Grenoble has much freedom

and less attachment.

„The harbour of Gijon“

The City of Gijon has a clear project that re-

groups and creates collaboration between

several organisation which provide services

to entrepreneurs or which are related to this

fi eld.

The Compyte project (improvement competi-

tiveness of the local SMEs) is the result of the

municipality initiative to promote the network

of most representative business associations

in Gijon, in order to identify critical factors in

the enterprises to increase growth and com-

petitiveness. The project regards:

Quality

Environment

ITC

Innovation

Labour Risk prevention

Corporate social responsibility

Internationalisation.

There is a range of local and regional entities

specialised in different sectors playing an

important role in the framework of the project.

Amongst the 16 organisations belong: Metal

Managers Association (FEMETAL), Youth Man-

agers association (AJE), Retail Union of Gijon,

Innovation Club, Congress Offi ce, Nautical

station, ICT Cluster, Mora Gary Industrial state

managers association, Somonte Industrial

state mangers association, Business school.

For further information: City of Gijon,

Isabel de la Huerga Iglesias,

Tel. +34(0)985182954,

proyectoseuropeos.alpee@gijon.es,

www.gijon.es

Gijon – Nautical Station.

Nautical Station is a project aiming at partner-

ships between SMEs in the tourist industry in

order to attract and redirect more tourists to

the project members. SMEs in the tourist busi-

ness are members of a network. This network is

created and sustained by Gijon (with the help of

the Spanish ministry for tourism).

It is a clear example of sectoral network sup-

port, specifi cally targeted at a certain sector.

The SMEs are visited by specialists who speak

the language of these specifi c entrepreneurs.

The network is supported by activities like:

organising meetings between their members,

caring for promotion for the members and so

on. This is on the one hand helping the indi-

vidual SME and on the other hand improving the

supply of tourist industry and thereby the at-

tractiveness of Gijon in the tourist market.

In the course of the passed years this is an

approach with has proven to be sustainable

(about 70- SMEs are a member). This sustain-

ability is also achieved in fi nancial terms. SMEs

pay for their membership.

Good practice element:

Sectoral approach.

In the range of projects supporting SMEs Nauti-

cal Station is very clear in targeting the services

to a certain sector. This makes the services

products clear for the SMEs and the producing

organisation and the effectiveness as well.

Effective sustainable network support.

Over the years there is a steady number of SMEs

that is paying for the membership and thus

convinced of the extra value the network and

the services give. The fi nancial commitment in

relation to the steady number of SMEs being a

member, underpins the sustainability of this

project.

For further information: City of Gijon,

Isabel de la Huerga Iglesias,

Tel. +34(0)985182954,

proyectoseuropeos.alpee@gijon.es,

www.gijon.es

Informal economy

When asked about the ideal environment to run

a business, almost all micro and small entre-

preneurs answer “no tax, no social contribution

and no administrative hassle”. These condi-

tions prevail in informal economy and of course

guarantee its success: the share of informal

economy is estimated between 10 and 25% of

GDP, this percentage being signifi cantly higher

in some transition economies.

Informal and shadow economy businesses

deprive governments of needed tax resources

and put undue burden on those companies that

are legally incorporated.

Micro-credit has been accused of fostering

informal economy since personal loans can fund

informal economy projects.

According to FEED13 experts there are three seg-

ments in the informal economy:

• businesses operate within the law but are in

breach of minor administrative regulations,

• business activity is legal but operated with

some systematic infringement of the legal

system (generally tax evasion),

• business activity is illegal or criminal and

promoters have no intention of legalising

the activity (“black economy”) (FEED 1999).

But they also indicate “it is important not to

suppress the informal economy, except for the

“black” economy segment, but to seek to cre-

ate the environment where legitimate business

people are facilitated to become part of the

formal economy” (FEED 1999).

is fully qualifi ed and suited to extend or to start his enterprise. For banks and fi nancial institutions that release grants and guaran-tees, this pass may function as a trustwor-thy proof of entrepreneurship.

The Business pass is therewith a key to all necessary items a SME would need for suc-cessful entrepreneurship and for receiving a bank loan and/or guarantee. The aspects are to be approached in such a pass:

1. Personnel skills. Courses on presenta-tion, organisational skills, bookkeeping etc.

2. Market access: Services concerning the market orientation of the business idea/plan.

3. Finance: Guidance about information banks require, fi nance possibilities.

Of course this Business pass should not be a bureaucratic structure that sets out a rigid list of requirements. The Business pass in itself orders the existing services and the relation between the several services. It should be an open and fl exible path maker for entrepreneurs in need of (non-) fi nancial services to improve their business. It offers in this way a checklist that helps the entre-preneur, the service provider and the bank.

Possibly a voucher system (as mentioned in chapter 2) could be introduced for all of the three stages. This might create an even stronger bottom up effect: the entrepreneur himself will choose the type of service and the organisation (the service provider) has to deliver the requested services.

All in all a Business pass and voucher sys-tem create a demand driven unifi cation of the large variety of suppliers of services and network support in a city/region.

3 How to improve the collaboration with fi nancial institutions?

The improvement of the relation between service providers and the banks is essential when the added value of service providers has to be captured in order to get access to fi nance for SMEs. The city could play a key role in this by organising events, such as round tables where banks and service providers meet. It is important to establish those round tables at different levels – an upper level for strategic decisions and a lower level for concrete clarifi cations of in-dividual problems.

In order to set the right perspective it is in-teresting to set out the possible synergy be-tween banks and service providers.

Clear offer of services

Banks and other fi nancial institutions rec-ognise the value of a well and clearly struc-tured offer of service and network support. When these services are delivered at a high professional level the fi nancial institutions clearly benefi t from this. The entrepreneur with his loan application is better prepared and skilled; this results in both reduction of risks and reduction of handling costs.

Network of all service providers

This recognition can be strengthened by creating stronger networks that include all existing service providers in the region. This happens once the ‘sector’ of service provid-ers is more united and uses the same sort of language. This unifi cation respects of course the particular functions that each different service provider offers to certain niches in the demand of certain entrepreneurs.

This will provide along the whole “produc-tion line” between service providers and fi nancial institutions a quicker and less costly process (less transaction costs, less time consuming for the banks and the en-trepreneurs, quicker redirection of specifi c demands, better use of scarce subsidies to providers).

Focal point used by banks to redirect clients

The favoured ‘unifi cation’ of services im-plies at the side of the service providers the

forming of a so-called focal point, which is a place where there is an overview of all ex-isting (niche-) services in the region. Banks and other fi nancial institutions can also di-rect clients who come to their organisation for a loan but are not yet ready for it, to this focal point.

The concept of the focal point implies that the wide variety of services in itself is not a problem; on the contrary it provides a wide service package which answers to a large variety of possible questions. An example of this variety in demand can be seen in an-nex 3.2.

Service providers deliver qualifi cation measures

The recognition by banks and other fi nan-cial institutions is also stimulated through the work service providers deliver on the aspect of qualifi cation. Through workshops, short training meetings or longer courses (starting) entrepreneurs are provided with professional knowledge that contributes to a more ‘trustworthy’ entrepreneur dur-ing the assessment by the fi nancial institu-tion during the loan application procedure. When entrepreneurs are better qualifi ed on several aspects like bookkeeping, market-ing etc. the risks are reduced and the credit-worthiness is increased. It therefore creates a leverage effect to access to fi nance.

Entrepreneurs better prepared for loan ap-plication

Another relevant leverage effect service providers can deliver is the preparation of the entrepreneur on issues like getting the right information from standard govern-mental procedures and documents whilst starting up or extending a business. It helps a bank to decide on a loan application posi-tively when an entrepreneur can show he is prepared – with the help of service pro-viders – on issues like permits, planning regulations, obtaining affordable business space, and dealing with an adequate loca-tion-market-research.

Entrepreneur fi rmly based in Business net-works

Of course this leverage effect applies also for the provision of entrepreneurs with rel-evant business contacts and networks. The more entrepreneurs are part of networks and can benefi t from business/to/business contacts, the more ‘self sustainable’ they can operate and more changes they have

Rotterdam-Delfshaven – OOR. “Ondersteuning

Ondernemers Rotterdam” (Entrepreneurs Support

Rotterdam). This project is a newly introduced

voucher system.

For many years start-ups who applied for support

at the Municipality’s desk (OBR) at the Rotterdam

Chamber of Commerce Information Centre, would

in many cases be referred to one of three (private)

business advisers with whom the City Council had

a contract. This system had a number of disad-

vantages:

• Expensive: as it was free of charge it attracted

many weaker start-ups who were unable or

unwilling to invest themselves in their future

• Supply sided: the entrepreneur had hardly

any choice of advisor or advise

• Limited: only support by the start was appli-

cable

• Unclear results: little proof existed that sup-

port and advise lead to a more successful

start for more than a few businesses

Since September 2005 a different system was

introduced, a voucher system:

• Open to all entrepreneurs

• Demand orientated – the entrepreneur de-

cides the need, the kind of support and the

service provider of his/her own choice

• With a fi nancial contribution of the entrepre-

neur – the Municipality subsidises to a maxi-

mum of 50% of the costs or €1.000

Every entrepreneur who seeks support can apply

for the OOR-scheme. The procedure is simple and

fast:

• Exploratory interview with Chamber of Com-

merce consultant

• If successful (entrepreneurs request is re-

garded as useful and in compliance with the

criteria) direct reference to the OBR desk (in

the same building)

• Immediate formal approval by OBR-consult-

ant (decision of co-fi nancing)

• Payment by Municipality to entrepreneur

after receipt of invoice

In the fi rst four months more than 100 entrepre-

neurs were rewarded a contribution. They differ

from those who in the past applied for the start-

up scheme:

• More established entrepreneurs than start-

ups

• Far better quality of entrepreneurship

• Strong willingness to invest in own company

and own future

The problems entrepreneurs now seek an answer

to are widespread; the main fi ve are:

• Development of own website

• Marketing advise

• Business plan (after fi rst start)

• Financial advise

• Strategic questions and corporate planning

Financial advice as a rule means advise by a busi-

ness consultant and includes preparation for

application of fi nancial support/credit facilities to

be used for investments.

The intention of the Municipality is to contact

applicants for the scheme after a year to learn the

results of the support provided and stay in con-

tact with the entrepreneur.

For further information:

Werk in West, Benji de Levie,

Tel. +31(0)10 476 22 23,

info@ondernemerswinkel.rotterdam.nl,

delevie@coid.nl, www.coid.nl,

www.ondernemerswinkel.rotterdam.nl

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3

57

The City of Gera has cre-

ated a business platform

and round tables where

contacts with banks are

fostered. Personal contacts

are most important in order

to ‘streamline’ the collabo-

ration between banks and

service providers.

The City of Vienna has in-

troduced the business plan

competition (amongst other

instruments) in order to get

a higher profi le of the col-

laborative relations between

the city (the main service

provider in Vienna) and the

banks.

The City of Vienna has con-

stituted a regional economic

information centre which

brings together all existing

services and network sup-

port offered in the city and

its districts.

The City of Leipzig has

chosen to collaborate with

one bank (the local Spar-

kasse) in order to help the

entrepreneur to draft his

business plan. The activities

are undertaken by the city

and an organisation at the

local centre in the neighbour-

hood (Business Information

Centre).

The City of Gijon has organ-

ised the collaboration with

banks on a regional scale

under the umbrella of the

regional government.

for profi table businesses. Service provid-ers, who deliver network support, therefore contribute to creditworthiness of entrepre-neurs.

Streaming information to lower the applica-tion costs

The last lever to access to fi nance for SMEs to be mentioned lays in the possible strong-er collaboration between banks and other fi nancial institutions and service providers on the issue of streamlining the loan appli-cation information fl ow. Due to the Basel II agreements banks have to rate the solv-ability of each loan. For SMEs and start ups certain categorisations are made, indicating each banks assessment of the creditwor-thiness. Each bank defi nes its own rating criteria per branch. Although partly a bank-secret, there are common data which every bank will seek in order to assess and there-by rate the creditworthiness of the applied loan.

When service providers are able to pre check this common information during the service procedure with each new entrepreneur the information fl ow is partly shifted from the bank to the service provider. This will cer-tainly imply a reduction of the transaction costs for the banks.

After loan allocation collaboration between the two partners might be useful in order to provide services and coaching during en-trepreneurial diffi culties. The banks might want to have a sort of “back up help”.

Support services that are helping to reduce the risk and the handling costs for the bank are for example:

4 What is the best support package of services and network support offered to entrepreneurs?

Within the scope of delivering services and network support there is the need to clarify how this package of services has to be, es-pecially regarding its functionality towards services that help to get access to fi nance. The ECO-FIN-NET-cities have regarded what the services are and what should be includ-ed in an all-round package.

This package should consist of three differ-ent types of services:

1. Personnel skills: Courses on presenta-tion, organisational skills, bookkeeping etc.

2. Market access: Services concerning the market orientation of the business idea/plan.

3. Finance: Guidance for entrepreneurs about what kind of information banks re-quire, what kind of fi nance possibilities are existent (grants, subsidies), what types of guarantees are wanted etc. (see chapter 2).

Apart from services through consultation, the network support and coaching servic-es could contribute to all of these services mentioned above.

These types have certain logic of subse-quently qualifi cation towards entrepreneur-ship. Of course in reality the needs of an entrepreneur for services vary much more, because each entrepreneur has some exist-ing skills and qualifi cation. But all in all the structuring of services along the mentioned types of services helps to defi ne the best package of services.

5 What is the best overall approach / broader integrative package?

The point above regards the inner world of services and network support provided for entrepreneurs. But there is a need to look broader and to consider what the best over-all approach could be. Having limited funds (in present and future) cities and the service providers seek the best mix is of services offered, related to budget and effectiveness and in relation to the political aims of the programmes.

Cities are, partly because of the URBAN programme, already used to work in a more integrative way. This broad scope is recognised by the ECO-FIN-NET-cities as an essential ingredient to complement the specifi c measures for the fi nance of entre-preneurs and services and network support as described in paragraph 3.3.4.

Especially the broader interventions cities undertake in deprived urban areas, such as social renewal and physical renewal, are creating an extra push to new enforced en-trepreneurship.

The physical renewal concerns amongst other issues, the availability of premises for economic activities. This is a concern of many cities as the existing stock is not suit-able and attractive or in some cases much too expensive for starting entrepreneurs.

Special incubators are sometimes erected to provide places for (selected) entrepreneurs, often combined with additional services and trainings and other help.

The improvement of the housing stock is another relevant issue in physical renewal. Through the renovation and creation of new houses, deprived urban areas could attract people with higher income and therewith attract additional buying power, which in it-self creates more wealth and demand for the local businesses.

58

3

59

Marseille – CPEM

The CPEM project is a clear

project where non-fi nancial

services and network sup-

port is integrated with fi nan-

cial services such as grants.

Business incubator in Venice

Before credit allocation After credit allocation

• Orientation / Information

• Profi ling / Business Plan advice

• Assessment of business idea; Business idea development

• Qualifi cation and Training

• Relation to labour market: Qualifi cation of personnel

• Mentor service (already in start-up-phase)

• Additional / previous check up of credibility of entrepreneur

• Pre-check: by ECTI or ex-bankers

• Focal point as entrance (like Vienna Business Agency)

• Continuous coaching/mentoring

• Qualifi cation and training

• Crisis management

• Labour market help advise (also for existing SMEs)

Stairway to entrepreneurship

Intake and check added value niche service providers

Market Access

- Marketing Plan- Business Plan- Permits check up- Premises- Location research- Business network

support - ...

Through consultation, coaching and network support

Personal Skills

- Presentation skills- Organisational skills- Bookkeeping- Networking- ...

Through consultation, coaching and network support

Finance

- Check up all data for loan application

- Advice for additional funds

- Grants- Loans- Guarantees- After credit check ups- .....

Through consultation, coaching and network support

The concept of several stages of services creates the following picture of a “Stairway to Entrepreneurship”.

In the City of Venice an incubator for artisan

enterprises is erected in Marghera. The incu-

bator functions as an instrument of economic

development where, in a protected atmosphere,

the future entrepreneur has the opportunity to

experience and to develop the enterprise idea,

have using of logistic, business, technical and

fi nancial supports, with the objective to “pass”

successfully the diffi cult phases of the activity

start up. This incubator can host at least a doz-

en of artisan enterprises. It has been planned

that the access to the incubator would happen

with an appropriate ban, that it establishes

which enterprises go privileged in the allocation

of available spaces.

For further information: City of Venice,

Francesco Bortoluzzi, Tel. +390412748155

francesco.bortoluzzi@comune.venezia.it,

attivita.produttive@comune.venezia.it,

www.comune.venezia.it

The improvement of the public space is also part of physical renewal and is essential next to urban safety to attract visitors to the area.

Next to the physical renewal one sees an integrative effect of the social renewal. In social renewal different actions are under-taken to help people to get a higher level of education, jobs or start their own business. All in all these actions lift the area up from a different angle: in terms of buying power, self-esteem and entrepreneurship. Some of these employment schemes include fi nanc-ing of services to stimulate certain target groups through consultation, grants and guarantees for projects for enterprises.

Apart from this, fi nancial incentives are of-ten available for investments and economic activities in these areas. In France the Zone Franche Urbaine (ZFU) is considered as one. In the UK the Business Improvement Dis-tricts (BID) are considered to be such an incentive. In the Netherlands the ‘Wijkon-twikkelingsmaatschappijen’ (local develop-ment agencies) are the carrier for tax-incen-tives for the developing housing associa-tions. In some cases these instruments are paired with exemptions of legal restrictions considering economic activities.

In any case a strong alliance between all stakeholders is a prerequisite. Apart from the triangle local authorities, banks, serv-ice providers, which is the fi rst bond to de-liver services and access to fi nance, there is a wider bond with different stakeholders, like:

• Organisations for social housing with in-terest in the area.

• Investors and developers (Investment banks, private capital, pension funds) having an interest or stake in the area.

• Neighbourhood self-organisations.

Therewith an important conclusion is that a broad integrative approach using the social, economical and physical renewal of an area is expected to have a leverage effect to the stimulation of SMEs in a less favoured area. This implies important side effects creating confi dence in the entrepreneurs who want

to invest in their enterprise as in the banks who are have the choice of fi nancing these investments.

Having recognised that there are many lo-cal and cultural conditions that makes it dif-fi cult to compare and stipulate the one and only way to deliver service and network sup-port, one can say that there are some gen-eral principles. The experience among the ECO-FIN-NET partner cities is that in daily practice the most effective way of deliver-ing services and network support is based on the following principles.

• Close to the entrepreneurs: physical dis-tance.

• Use of experts with same (cultural) back-ground.

• Use of a variety of methods to reach out to new unknown entrepreneurs.

• Services consist of a wide variety, which contains service, training, consultation and coaching and network support.

• Informed about the whole spectrum of services delivered in the region, using a focal point to redirect specifi c needs if necessary.

• Service and network support before credit allocation and afterwards, when the entrepreneur is active.

• Close cooperation with banks, which should lead to pre check of bankabil-ity and lowering transaction costs and risks.

• Availability of affordable premises.• Availability of employment schemes.• Possible tax exemptions and other fi -

nancial incentives for enterprises and investments in urban areas as part of urban policies and possibly diminishing red tape.

• Integrated in a broader urban renewal and regeneration process• Public space• Attracting higher incomes• Infrastructure (roads, public trans-

port, fi bre to the home)• Safety schemes

• In alliances of all relevant stakeholders.

This list of elements can be added to the fi gure of the “stairway to entrepreneurship” and leads to this fi gure:

6 How to sustain fi nancial resources?

The shortage of funds for services and net-work support for getting access to fi nance for SMEs is obvious. Amongst the ECO-FIN-NET-cities only two projects seem fi nancial-ly sustainable: One wholly private initiative in France (ECTI) and a nationally initiated project in Gijon (Nautical Station).

In some cities business associations are of-fering to their members extra services. The entrepreneurs pay for the services. These business associations deliver services for which the public sector does not have to pay. In this sense they contribute to lower the heavy fi nancial claims to the public sec-tor to offer services and network support.

60

3

61

The City of Leipzig has engaged a business

promotion bureau (UGB) that not only helps to

improve the quality of the entrepreneurs by

information and advice, but also by providing

inexpensive premises.

Marseille has a project that is obvious part of

a broader strategy not solely leading towards

entrepreneurship but also focussed on poverty

alleviation and empowerment.

Service d’Amorçage de projet : (S.A.P)

The SAP project (national initiative targeting

urban deprived areas) aims at helping people

(young people, ethnic minorities, women) to

start off their project: to start an enterprise or

something that might lead to an enterprise. This

is offered in several deprived neighbourhoods

(3 in the period 2003-2005; 9 nowadays). Espe-

cially people with a long distance to the econ-

omy are targeted; unemployed people, ethnic

minorities, women. People with an idea to start

up an enterprise are given orientation courses

and information sessions are delivered for the

people. The people are helped to formulate the

idea into a real viable project. The SAP project is

offered in the near of the residents. This proxim-

ity is a central principle of the project.

SME support is not the most important goal. It

seems that poverty alleviation is even a more

important part of the goal of this project.

The project is organised at a distance from the

local government, initiated by the investment

bank Caisse des Dépôts et Consignations. It

is supported by the French ministry for urban

affairs (DIV). It is formed in a broad partnership.

The project is evaluated by an independent

organisation. Clients are questioned after the

start of their enterprise.

Good practice element:

Poverty alleviation.

Unlike most other projects the SAP project has

the goal to alleviate the poverty of the targeted

people in the deprived neighbourhoods. The

viability of the SME is not apriory the central is-

sue; the empowerment, people giving direction

to their own lives, seems just as important.

Clear target on low economy; weaker part of

the population.

Compared to other projects, the SAP project

seems to target most clearly at certain feeble

groups like ethnic minorities, women and unem-

ployed people.

Presence in the neighbourhood.

SAP is built on the principle to be as a service

institute as near to the clients as possible.

For further information: City of Marseille,

Olivier Rebeyrotte, Tel. +33(0)491990157,

orebeyrotte@mairie-marseille.fr

www.mairie-marseille.fr

Best overall approach/ broader integrative package

- location of service provider in urban area- experts with cultural background like clients- using the widest variety of services at all levels- using a focal point to redirect specifi c needs- stretching services from before to after credit allocation- close collaboration with banks reducing risks and transaction costs- part of broader social and physical regeneration process- availability of affordable premises- availability of employment schemes- other fi nancial incentives for investment in urban areas by entrepre-

neurs- diminishing red tape- in alliances with all stakeholders

Intake and check added value niche service providers

Market Access

- Marketing Plan- Business Plan- Permits check up- Premises- Location research- Business network

support- ...

Through consultation, coaching and network support

Personal Skills

- Presentation skills- Organisational

skills- Bookkeeping- Networking- ...

Through consultation, coaching and network support

Finance

- Check up all data for loan application

- Advice for addi-tional funds

- Grants- Loans- Guarantees- After credit check

ups- .....

Through consultation, coaching and network support

But the business associations have short-comings too:

• The access to these services is limited to the members and usually not to start ups.

• Often these associations do not have many members in deprived areas and do not deliver service in these areas.

The cost cutting opportunities are limited for cities. Cities could reorganise the service packages and shift to less costly measures. In chapter 2 the necessary shift from grants to guarantees is pictured. In services a shift from full swing services to more self-help instruments as network support and coach-ing could be a possible solution. But this does not solve the problem wholly when we consider that there is a greater need in the market than reached. The possibility to raise fees to be paid by entrepreneurs can bring some positive effect, although in some cities there is a clear policy to of-fer the consultancy for free, especially when

the target group consists of the inhabitants in deprived neighbourhoods.

Cities themselves should realise that on a structural base fi nance should be redi-rected to services and network support in their own local budget. Financial support for these services is just as legitimate as the services of maintenance of public roads and other regular local tasks. But of course lo-cal fi nancial resources are limited. In this re-gard, the importance of the URBAN-funding in the past European budget periods must be highly recognised. URBAN gave cities the opportunity to invest in the local serv-ices and network support activities, to bring together all organisations and to stimulate better quality and effi ciency. The impor-tance of URBAN in the fi eld of stimulation of entrepreneurship, through access to fi -nance, and services and network support is evident. When in the coming budget period these funds are not available, the activities – mostly project based – will stop.

This implicates that in EU-documents and future European programmes based on the strategic guidelines one would expect to fi nd a clear role for local governments to implement and fi nance the actual projects resolving the targets. This should be accom-panied by structural (European) funds and funding programmes.

The City of Gijon and the City of Grenoble have

projects that are fi nancially self supportive. They

form the exception to the rule.

The nautical station project in Gijon is fi nancially

sustainable. Over the years there is a steady

number of SMEs that is paying for the member-

ship and thus convinced of the extra value the

network and the services give. The fi nancial com-

mitment in relation to the steady number of SMEs

being a member, underpins the sustainability of

this project.

Grenoble – ECTI

ECTI is a French national association that helps

(amongst other goals) entrepreneurs to create a

company or help entrepreneurs with their diffi cul-

ties during the lifecycle of their enterprise. ECTI

has different branches in each department. ECTI

uses senior (retired) persons to give advice and

deliver coaching to the (candidate-) entrepreneur.

These persons (mentors) pay for the contribution

to the ECTI network. The entrepreneurs, who get

advice, pay also a limited amount. The creation

of fi rms is one of the important fi elds of ECTI.

The coach helps the (candidate) entrepreneur to

defi ne his needs and search for specifi c answers

and help in the whole ECTI network. The follow up

phase after creation of the SME is a service, which

needs to be developed.

Good practice element:

Fully self supportive in fi nancial terms.

ECTI is the only proven project that is fi nancially

totally self supportive; an achievement to be

mentioned as fi nance is in many projects a major

hindrance for fully sustained services to SMEs.

National network, locally based.

ECTI is a good example of a national project with

local/departmental branches. In the Grenoble

area this branch works together with other serv-

ice providers, and therewith forms a part in a

broader local area network of service providers.

Networks of service providers.

Grenoble uses the variety of many (about 40)

ser vice providers, national or regional, subsidy

based or based on voluntary commitments.

Where relevant it knits the services together by

additional fi nancial incentives. In this construc-

tion Grenoble has much freedom and less attach-

ments.

No governmental interference.

Partly due to the fact ECTI is not fi nancially de-

pendent from government, it is also a project that

originated from the civil society; there are no ties

and strings with the government, although in

some case governments (regions) pay for certain

(extra) activities.

For further information:

Grenoble Alpes Métro pole (La Métro),

Axelle Violleau, axelle.violleau@la-metro.org,

http://www.ecti-rhone-alpes.org/

62

URBAN-area Grenoble

3

63

City of Gijon – Retailer Organization (UNION DE

COMERCIANTES)

Retailer Organization is a business associa-

tion created in 1978 composed by SMEs retail

commerce in the City of Gijon and Carreño. It is

considered as beeing the association with the

best representation of retail entrepreneurs.

The organisation guards and represents their

members’ interest. Since few years the organi-

sation strives to stimulate the cooperation of

the management of the business, the promotion

of the quality and personal attendance towards

the costumers. It is a clear example of sectoral

network support, specifi cally targeted at a retail

commerce.

The network is supported by activities like:

• Financial, administrative and juridical coun-

selling.

• Enterprises agreements (Hotels surveil-

lance systems, insurance companies).

• Advising, monitoring and loyalty cards.

City of Gijon – Youth Enterprises Association

(AJE).

Youth enterprises association is a project aim-

ing at partnerships between young enterprises.

The objective of the association is to promote

entrepreneurial spirit, the professional interest,

the supporting projects, provide information

and counselling.

It is a clear example of sectoral network sup-

port, specifi cally targeted not in a certain sec-

tor, but targeted at the age of the youngster

entrepreneurs (not older than 40 years).

For further information: City of Gijon,

Isabel de la Huerga Iglesias,

Tel. +34(0)985182954,

proyectoseuropeos.alpee@gijon.es,

www.gijon.es

64 65

4

4 Recommendations

In order to face the existing barriers and to foster the SMEs’ access to fi nance in the less favoured areas, integrated packages of fi nancial and non-fi nancial support are necessary. This implies a strong and trust-ful local partnership of different local actors – the local authorities, fi nancial institutions, service providers, the Chambers and busi-ness associations, etc. and the SMEs them-selves. They all have to cooperate in order to comfort existing successful schemes and to take over their respective responsibility regarding SME Support.

The three work groups within the ECO-FIN-NET developed a number of recommenda-tions that apply for city representatives as well as local, regional and national decision and policymakers. But the cultural and legal differences in cities and member states dif-fer, which implies that some recommenda-tions might not imply to every city or state. For instance, the tradition of the more devel-oped fi nancial market in Great Britain than on the continent causes signifi cant differences between the fi nancial systems of the con-cerned countries. In some countries savings banks are involved in local economy whilst they simply do not exist in other countries.

One main concern of businesses is the ac-cess to external fi nance. In order to solve the various problems regarding SMEs’ access to fi nance, both fi nancial and non-fi nancial support must form one consistent support package.

• Access to fi nance for SMEs is achievable by two complementary approaches, both necessary to deliver the best mix: fi nan-cial incentives and services and network support. European policies cannot only support the fi nancial incentives, but also take into account the provision of service and network support to SMEs.

• Economic development instruments can only be successful when they are part of an integrated approach or strategy. This implies a strong support for cross-secto-ral and integrated policies like URBAN in the coming policy period. National pro-grammes executing European policies and strategic guidelines have to con-sider the higher effectiveness of local integrated approaches. To raise this ef-fectiveness, local authorities should be helped to create such cross-sectoral and

integrated policy; this concerns the pos-sibility to use different (European) funds in one integrated local programme.

• Another form of integration is the neces-sity to integrate the policies to create greater access to fi nance for SMEs with other economic policies concerning- the availability of premises with a low

rent level,- the retail policy (regulating types of

shops and market forces),- area marketing,- regional cluster economic policy,- empowerment strategies for ethnic

or other minorities.

Therefore, the SMEs’ access to fi nance must be part of a wider economic policy.

Private Finance

The usual source of fi nance for SMEs is banks and other fi nancial institutions (e.g. micro credit institutions).

The problem rises when the lending organi-sations are, for understandable reasons, reluctant to fi nance some projects. These reasons are:

• The lack of suffi cient collateral which results in an increased fi nancing risk for the lending institutions; if this increased risk were refl ected in the interest rate of a loan given to the enterprise in question, this interest rate is likely to be too high to be accepted by the entrepreneur.

• The high cost of loan application and processing in relation to the small amount of credit: in practice, these costs cover the work of preparing the loan ap-plications by the SMEs and of the risk as-sessment and processing by the lending institutions.

• The lack of information or track record about the small businesses.

Lowering or sharing the risk

One solution for this problem has been pre-sented for a long time by loan guarantee funds that cover part of the risk for the lend-ing institutions. Concerning this subject, the ECO-FIN-NET work group recommendations are:

• The local authorities may consider bring-ing a fi nancial contribution to existing guarantee schemes, to guarantee loans to local businesses or to increase the guaranteed loan percentage for the small businesses in the less favoured area.

66 67

4

• They should ensure that the guarantee funds are really opened to the small businesses, i.e. make small projects “bank worthy”: they should not only be a system that facilitates the procedure for seizure of collaterals from the traditional bank clients.

• As a consequence the guarantee scheme should cover SME loans, including espe-cially micro-credit loans.

• A guarantee scheme should be a fl exible instrument opened to a contribution by the public local authorities, targeted to the businesses established on (part of) their territory according to negotiable guarantee conditions.

• Guarantee funds should be designed on a rather large basis to diversify and spread the risks and reduce the opera-tional costs: this means that local guar-antee funds (limited to the territory of a municipality) should be avoided. This recommendation is not contradictory with a local authority conducting a spe-cifi c action on a specifi c territory: this authority can contribute to a wider fund with specifi c conditions for those busi-nesses that are located on the territory of the municipality.

• The guarantee funds should be managed by specialised fi nancial institutions in order to increase the leverage ratio and lower the operational costs.

• Mutual guarantee schemes should be envisaged when strengthening the links within a local / sectoral business com-munity is an issue.

• Counter guarantee systems at national level should be developed as well as the European counter guarantees delivered by the European Investment Fund (EIF).

Reducing the costs of small loan applica-tions and improving the quality of docu-mentation

When small businesses apply for a loan, they have to prepare a loan application which sometimes means business data, business plan, and list of available collateral items… Small loans are not assessed in the same way as large ones but well prepared appli-cations are easier (and less time-consum-ing) to process by the fi nancial institutions.

The ECO-FIN-NET recommendation is to de-liver advisory services to the applicant busi-nesses in the preparation of their loan appli-cations and to add such fi nancial expertise to the list of other types of expertise eligible to the (regional) advisory support schemes like other types of advisory services.

Another possibility is to make loan applica-tion processing costs by the fi nancial insti-tutions also eligible to support from the ex-isting business advisory support schemes.

The processing procedure for loan appli-cations should be designed in a way that avoids duplication of work. As a fi rst step in this direction credit check results could be communicated between banks and guaran-tee funds with the consent of the companies concerned. This cooperation with the aim of leaner and cheaper processes can be further developed and intensifi ed:

• Institutional cooperation between lend-ing and guarantee institutions, giving enterprises the option of a one-stop ap-plication point.

• Designing lending products with a “built-in” guarantee (“exception from liabili-ty”) which is “automatically” applied for together with the loan product.

Public Financial Support

General Framework for City Involvement

It seems obvious that public SME support measures have to be in line with the busi-nesses’ expectations and requirements. As a general rule, SMEs require stable, visible and effi cient procedures. They also give a preference to the local level (City). For the cities, these conditions are met by partner-ships and the ECO-FIN-NET recommenda-tions are:

• Stable procedures mean sustained ac-cess to fi nancial resources. For the cit-ies, securing these resources can be achieved by a partnership with other public entities that run multi-annual pro-grammes (Regions, national level, EU Structural Funds…).

• Visibility means that the support schemes have to be promoted to the SMEs. This promotion can usefully be achieved by business representative or-ganisations and the cities should organ-ise a partnership with these organisa-tions for this purpose.

• Effi ciency requires technical expertise that is generally developed by special-ised institutions. In order to design and run effi cient instruments, ECO-FIN-NET recommends that the cities organise a partnership with specialised fi nancial institutions.

Public Financial Support Instruments

Public fi nancial support instruments in-clude grants, loans, guarantees and venture capital. The ECO-FIN-NET recommendations on guarantees have been presented in the paragraph on lowering and sharing the risk.

Grants

Grants are a very successful support in-strument for new projects that require a consolidation of the entrepreneurs’ equity: they bring more confi dence to the projects, giving them access to other forms of fund-ing. This is particularly true for the smallest projects. Thus cities, in their less favoured areas where the vast majority of businesses are small sized and where all projects need to be given a chance to fl ourish, may consid-er allocating grants targeted to the smallest businesses or projects to increase their cap-italisation and thus bank confi dence.

Grants should be considered as part of a global fi nancial package aiming at mak-ing small projects bank worthy. In all cases these grants should be used as an incen-tive for commercial banks (including private micro credit) to be involved in the projects and it is the local authority’s responsibility to make it clear to the commercial banks by general discussions with the local banks’ associations and with individual loan appli-cations. The cities should always negotiate with the private fi nancial institutions (com-mercial banks) so that the public grants and loans are an incentive for private fi nance (leverage effect).

In case of scarce public resources, priori-ties should be set for grant allocation by the local authorities, but automatic secto-ral support, geared to specifi c investments (for instance investments in ICT equipment) should be avoided as the main priority for grants is to make any type of new (legally registered) projects (and new economic ac-tivity) start and develop on the long term.

Loans and micro-credit

Loans and micro-credit require complex skills and procedures, and may involve busi-ness liabilities that a public body should avoid. So the ECO-FIN-NET partner cities recommend that the Municipalities support existing schemes with incentives so that these schemes are more active in the dis-advantaged areas, rather than run such sys-tems themselves. These incentives should be negotiated so that the public support

strictly applies to the businesses in the con-cerned area.

The cities can envisage to bring a fi nancial contribution to cover the administration costs of the loans to the small businesses located in the targeted areas or specifi c lo-cal costs such as the costs of opening a local offi ce (or refurbishing existing premises).

Local authorities may also engage in part-nership with private stakeholders to capital-ize micro credit schemes and may have the possibility to negotiate specifi c conditions for businesses / projects located in specifi c areas (less favoured neighbourhoods).

They can also support the existing business advisory support schemes to cover the costs of loan application processing by the fi nan-cial organisations (banks and micro-credit) for businesses in the less favoured areas.

Venture capital

For the ECO-FIN-NET partner cities, venture capital is hardly accessible to (and designed for) a large number of small businesses lo-cated in the less favoured areas.

• The local authorities should not raise unfounded expectations with the SME community in publicising possibilities of venture capital that will only apply to a very small minority of businesses, in particular in the less favoured areas where the vast majority of projects be-long to traditional sectors of activity.

• They could be partners of specialised venture capital organisations if neces-sary and when required by local busi-nesses (ad hoc case by case agreement). They may envisage a fi nancial contribu-tion to capitalise investment funds (seed and venture capital) for investments in local businesses but also/rather to cov-er the administrative costs of process-ing applications and the management costs.

Non-fi nancial support

An effi cient implementation of these instru-ments requires complementary advisory services, training and promotion that are generally achieved by service providers and business representative organisations. The ECO-FIN-NET recommends that the cities provide fi nancial support to these organisations to achieve these missions.

68 69

4

Non-fi nancial support is as important as fi nancial support.

The best technically designed support in-struments will only be successful if they are joined with promotion campaigns (long last-ing), advisory services and training schemes generally understood as non fi nancial serv-ices and network support.

This implicates as well that the services should be targeted at deprived urban areas and there in addressed to the local busi-nesses.

Non-fi nancial support needs specifi c investments .

In order to reach out to the entrepreneurs who are most targeted as the ones in de-prived urban areas, it is recommended that the service providers have a service location in the near of the entrepreneur, that is in the neighbourhood.

Besides of this, the staff of the service pro-vider should be capable to communicate in order to reach the client effectively. As de-prived urban areas are often inhabited by people of multi ethnic origin, this means that the staff should refl ect the ethnic popu-lation of the area they work for.

The use of a variety of methods is recom-mended.

The number of entrepreneurs not reached by service providers is substantial. Therefore there is a great need to improve the meth-ods to reach the entrepreneurs, so that the services can be expanded to a larger group of clients.

In order to meet the - in many case unex-pressed - demands and wishes of an entre-preneur, a wide variety of methods is col-lected. There is not one outstanding meth-od that could replace all others. Therefore to reach the entrepreneur, a wide variety of methods should be part of the repertoire of each service provider. Service providers should check the list in this report in order to improve their capability to reach entre-preneurs.

The supply of various services to entrepre-neurs should be brought together in focal points.

In many cities there is wide range of differ-ent service providers assigned and commis-sioned by various authorities. Cities should

arrange regular meetings between those providers in order to create more unifi ca-tion of the supply without any unnecessary excluding of existing valuable niche play-ers. This should lead to a focal point where there is an overview of all providers. At this focal point a redirection to a certain suitable provider can be made, so that the most ap-propriate service is delivered to an entre-preneur.

Supply of services can be unifi ed through a Business pass and a voucher system.

Apart from bringing together all existing service providers and creating a focal point, unifi cation of service can be achieved by in-troducing a Business pass. This pass makes clear what type of service an entrepreneur is lacking and what he already has. It services the allocation of the services to the entre-preneur.

The Business pass can be combined with a voucher system. A voucher system gives a (free) right for the entrepreneur to select the services he wants. This creates a de-mand driven unifi cation of the (most popu-lar) services.

Collaboration between service providers and banks should be improved.

The collaboration between banks and serv-ice providers should be improved. It is nec-essary to create a trustful relation between these groups of actors in the urban area. Through collaboration between service pro-viders, banks and local authorities, banks can enhance their ability to provide loans to qualifi ed entrepreneurs. In some case the necessary costs banks have to make for loan applications, can be reduced by streaming information needs and collecting this information in the phase of consultation by the service providers.

The best package of services and net work support is a stairway to entrepre-neurship.

Structuring the different services is required and can be done by the concept of the ‘stair-way to entrepreneurship’. This stairway con-sists of three different types of services:

1. Personnel skills: Courses on presenta-tion, organisational skills, bookkeeping etc.

2. Market access: Services concerning the market orientation of the business idea/plan.

3. Finance: Guidance for entrepreneurs about what kind of information banks re-quire, what kind of fi nance possibilities are existent (grants, subsidies), what types of guarantees are wanted etc.

Apart from services through consultation, the network support and coaching services is an important complementary element in the package and contributes to all of these services mentioned above.

This stairway is best accessed when it is combined with a Business pass and a voucher system.

Access to fi nance and service to entrepre-neurs need broad URBAN policy also in the coming EU budget-period.

Apart from the concept of the stairway to entrepreneurship, it is widely acknowledged that these services and network support cannot be fully effective without a broader integrative approach, which consists of economic, physical and social renewal. As collaboration is most necessary to achieve these policies, the city in the centre of this will have to engage all relevant stakehold-ers in this broad fi eld.

The URBAN programme has paved this inte-grative way of working and thinking in the past. The urban dimension in the upcoming new European Programmes is an important precondition to enhance the achievements of the services and network support to SMEs.

Delivering services needs long term fi nanc-ing by European, national and local govern-ment.

It is clear for everyone involved in fi nan-cial or non-fi nancial supporting schemes, that there is no practical way to have a fully self-sustainable service provided. Many of the existing projects are fi nanced for only a short period of time, often combined with European funding. In order to create a long-standing fi nance source to the services and network support it is recommended that European programmes include this serv-ice to be eligible. A strong and clear urban dimension in the upcoming new European Programmes is an important precondition to enhance the achievements of the services and network support to SMEs.

Of course local authorities have the respon-sibility to allocate within their own budget possibilities enough funding as well. To

meet the needs it is clear that an enlarge-ment of municipal budgets is necessary.

Conclusions

All the previous recommendations are based on the ECO-FIN-NET partner cities’ experi-ences with one general framework and two common rules:

The general framework concerns sustain-ability for support systems:

It has been indicated that this goal can be achieved by a partnership with other public and private entities. In particular, the ECO-FIN-NET partner cities wish to emphasize that the “Acquis URBAN” be integrated in the next programming period and that the corresponding measures be integrated into the EU mainstream funding.

The two rules are:

1. Effi cient support instruments to improve the SMEs’ access to fi nance are designed as a package or combination of fi nancial and non-fi nancial services well adapted to the small businesses’ requirements.

2. It is part of the cities’ vocation to take the initiative and build up partnerships with public and private entities in their environment to deliver these services to the small businesses effi ciently.

The ECO-FIN-NET conclusions regarding fu-ture SME Support, both fi nancial and non-fi nancial support, form an important part of an integrated urban policy for the less favoured urban areas. The suggested meas-ures to strengthen local economy, particu-larly the micro and small businesses, con-tribute to a signifi cant stabilisation and revi-talisation of a disadvantaged urban area.

5 The ECO-FIN-NET network

The local economy in disadvantaged areas is based to a large extent on small and mi-cro enterprises. A decisive approach to up-grade such areas is therefore the support of small and micro enterprises. Through the securing of employment the disadvantaged neighbourhoods can be strengthened, their attractiveness increased and the identifi ca-tion and binding of the inhabitants with their area enlarged. The economic revitalisation has therefore not only positive economic but also social effects.

The integrated approach is a characteristic of the European Community Initiative UR-BAN and initiated the examination of this topic on the European level in the frame of the URBACT programme. Until now micro and small enterprises, which are of such high importance to disadvantaged areas, are not suffi ciently regarded – or even excluded – by regional and national funding policies. On the other hand existing approaches of integrated urban renewal are rarely based on successful concepts to support the lo-cal economy. Especially URBAN could take a leading role in this context. This shall be systematically analysed and developed fur-ther with the help of URBACT.

5.1 The European Programme URBACT

Since 2003, the European Commission has been supporting the Europe wide exchange of cities in the fi eld of integrated urban development within the frame of its pro-gramme URBACT. The programme serves:

• the exchange of innovative ideas and ap-proaches as well as “best practices“,

• the advancement of the methods of inte-grated urban development,

• the development of political recommen-dations in the fi eld of urban development on a European level after the year 2006.

The URBACT programme addresses all cities that have already been funded within the frame of Urban Pilot Projects (UPP) or the Community Initiatives URBAN I and/or UR-BAN II and have therefore been able to gain a lot of experience with integrated concepts for the regeneration and revitalisation of

disadvantaged districts. Furthermore, cities from the new member states with more than 20,000 inhabitants are invited to participate in the programme.

The programme URBACT is monitored by the French Ministry for Cities and Urban De-velopment as managing authority. The Délé-gation Interministérielle à la Ville has taken over the tasks of programme secretariat, which is responsible for the processing of the programme. The Délégation is located in Paris. A total budget of 24.76 million Euro are available in the period from 2002-2006. More than two thirds are provided by the European Regional Development Fund and 8.86 million Euro come from national co-fi -nancing.

The focus is set on the establishment and organisation of thematic networks of cit-ies. The objective is to discuss comparable problems concerning urban revitalisation with cities of other member countries and thereby to establish a generally accessible knowledge base in the fi eld of integrated urban development. Each network is deal-ing with a specifi c topic. The cooperation between at least fi ve cities from three mem-ber states is a precondition for funding. One city always acts as lead partner, i.e. it takes responsibility for the organisation and the coordination of the network.

5.2 The URBACT-network ECO-FIN-NET

The thematic URBACT network ECO-FIN-NET, led by the City of Leipzig, aimed at im-proving the relevance and effectiveness of strategies and actions and at developing new and innovative approaches for foster-ing the local economy in deprived neigh-bourhoods. Particular attention was paid to the support of small and medium sized enterprises (SME) by innovative fi nancial techniques and instruments as especially in deprived URBAN areas the local economy consists largely of those small businesses. (Financial) assistance to SMEs is therefore one vital element to improve the local econ-omy and to create new job opportunities in disadvantaged areas. This in turn helps to upgrade the whole neighbourhood, increas-es the attractiveness and image and fi nally strengthens the commitment of the inhabit-ants to their neighbourhood. Thus, the care for SMEs becomes a core task for local gov-ernments.

70 71

ECO-FIN-NET Partners; Final

Conference in Marseille,

March 2006

5

5.2.1 Work groups / Sub themes

In the frame of the ECO-FIN-NET, three work groups were established in order to discuss about concrete approaches and strategies how SMEs – especially in deprived areas – can be supported in future.

1. SMEs’ access to fi nance is generally achieved through banks and other fi nan-cial institutions. When some businesses face diffi culties, ECO-FIN-NET has stud-ied the reasons for these diffi culties and proposes possible solutions with inter-vention by the cities.

2. For several years, the cities have de-signed fi nancial support for the devel-opment of businesses and start-ups (grants, loans etc.). ECO-FIN-NET has questioned the relevance of these sup-port instruments, in particular their ad-aptation to the specifi c conditions re-quired by micro and small businesses in the less favoured areas.

3. Access to fi nance also requires non-fi -nancial services such as business advi-sory services, training, mentoring and networking. ECO-FIN-NET has studied the services best targeted at improving SMEs’ access to fi nance.

More generally, ECO-FIN-NET paid particular attention to the possibilities of maximising the public support impact by various forms of partnership with other public or private entities; all the more in the current context of dwindling public fi nancial resources, when the cities aim at doing more with less direct funding.

For each of these three themes, ECO-FIN-NET set up a work group with experienced cities’ representatives. Ten meetings were organised for the work groups, with partici-pation of external experts such as banking representatives, German Savings Banks As-sociation, entrepreneurs, micro credit and guarantee fund organisations etc. The work groups have been advised by two URBACT thematic experts and the German Associa-tion for Housing, Urban and Spatial Devel-opment as thematic coordinator of the ECO-FIN-NET.

5.2.2 Working approach

The ECO-FIN-NET project was conducted from January 2004 until June 2006. The course of the project was divided into three main phases:

1. During the fi rst project year (January-December 2004), the partner cities have presented their practical experiences re-garding local SME support to one anoth-er and identifi ed possible good practices (see annex V).

2. After this phase of identifi cation, refl ec-tion and evaluation of existing strategies and instruments, the cities started de-veloping during the second project year in 2005 new instruments and approach-es of fostering the local economy (see chapter 2 and 3). They have assessed their practices, worked out their major potentials and obstacles and selected the most relevant elements which are deemed transferable to other cities; al-ways having in mind the different nation-al contexts and development stage of the participating countries: for instance, the tradition of the more developed fi -nancial market in Great Britain than on the continent causes signifi cant differ-ences between the fi nancial systems of the concerned countries. In some coun-tries savings banks are involved in local economy whilst they simply do not exist in other countries.

3. On the basis of these evaluations and their own practices, they have prepared recommendations that some of them currently start implementing.

In terms of meetings, there were two differ-ent types:

• Separate meetings of the three estab-lished work groups took place. The work groups involved those partners who dispose of specifi c experiences and ex-pertise in the respective thematic fi eld. Thus, a detailed consideration of each theme and an extensive use of existing knowledge and expertise could be guar-anteed.

• The results of the workings groups, ed-ited in several working papers, were presented to all partners at the network conferences. The main objective of these conferences was to merge the different results of the three work groups into one consistent and coherent concept and to disseminate the ECO-FIN-NET ideas to the interested wider public.

In total, the ECO-FIN-NET organised four bigger conferences, including also a wider public, and six work group meetings.

5.2.3 External expertise

The ECO-FIN-NET had a very broad approach of involving experiences of external experts in its network. Within each network meeting several external experts have participated. For instance, the work group 1 met during their fi rst meeting in Rotterdam with about 10 bank representatives from the Nether-lands and Germany. The work group 2 met in Gdansk with British and Polish micro credit and guarantee fund organisations. And work group 3 partners exchanged their ideas with local entrepreneurs and service providers.

The German Association for Housing, Urban and Spatial Development was the Thematic Coordinating Partner of the ECO-FIN-NET and assisted the Lead Partner, the City of Leipzig, in the coordination of the network. As the association is also managing the Ger-man-Austrian URBAN-network, the huge range of experiences of all German and Aus-trian URBAN cities could also be involved in the ECO-FIN-NET discussions.

Besides, the thematic URBACT experts Patrick Fourguette, expert with the GIP ADE-TEF French Ministry of Economy, Finance and Industry as well as Jeroen den Uyl from the City of Amsterdam assisted and animated the ECO-FIN-NET work groups very inten-sively.

The German Savings Banks Association also supported the ECO-FIN-NET in an intensive way. Dr. Bertram Reddig and Dr. Lothar Blatt from the German Savings Banks Association were actively involved in the network, espe-cially in the work group 1 of the ECO-FIN-NET dealing with fi nancial support facilities for SMEs. They guaranteed that the position of the banks was also refl ected within the net-work discussions.

Furthermore, the network was in close con-tact and cooperation with several players at local, regional, national and European level. For instance, the ECO-FIN-NET regularly ex-changed their views with representatives of the European Commission (DG Regio and DG Enterprise) and the European Invest-ment Fund and with several other coopera-tion projects and networks which are deal-ing with similar questions and issues than the ECO-FIN-NET.

Last but not least, one major objective of the network members was to involve as much experts as possible at local as well as national level and to disseminate and refl ect the ECO-FIN-NET results.

The ECO-FIN-NET thanks all partners and experts for their assistance.

72

Active Partners’ Discussions,

ECO-FIN-NET Midterm con-

ference, Birmingham,

September 2005

5

73

Kick-off-Conference in

Leipzig 2004

ECO-FIN-NET Meetings1st Project Phase

Kick-off-Conference in Leipzig, Germany 29-31 March 2004

Work Group 1-meeting in Rotterdam, Netherlands 3-4 June 2004

Work Group 2-meeting in Brussels, Belgium 24-25 June 2004

Work Group 3-meeting in Gera, Germany 28-29 June 2004

1st Interim Conference in Venice, Italy 11-12 October 2004

2nd Project Phase

Work Group 1 & 2-meeting in Gdansk, Poland 7-8 March 2005

Work Group 3-meeting in Grenoble, France 22-23 April 2005

2nd Interim Conference in Birmingham, Great Britain 12-13 September 2005

3rd Project Phase

Work Group (1-3)-meeting in Vienna, Austria 23-24 January 2006

Final Conference in Marseille, France 27-28 March 2006

74 75

Appendix

I Partner Cities / Contact Persons

LEAD PARTNER

City of Leipzig

Offi ce for Business Development

Brigitte Brück

Neues Rathaus, Martin-Luther-Ring 4-6

04092 Leipzig, Germany

Tel.: +49 (0) 341 123 58 41

Fax: +49 (0) 341 123 58 25

e-mail: brigitte.brueck@leipzig.de

www.leipzig.de

THEMATIC COORDINATOR

German Association for Housing,

Urban and Spatial Development

Silke Brocks

47-51, Rue du Luxembourg

1050 Brussels, Belgium

Tel.: +32 (0) 2 550 16 13

Fax: +32 (0) 2 503 56 06

e-mail: s.brocks@deutscher-verband.org

www.deutscher-verband.org

Birmingham City Council

Planning and Regeneration & Regional, European

& International

Mohammed Zahir

25th Floor alpha Tower, Suffolk Street, Queensway

Birmingham B1 1TR, Great Britain

Tel.: +44 (0) 121 303 2956

Fax: +44 (0) 121 303 2622

e-mail: mohammed.zahir@birmingham.gov.uk

www.birmingham.gov.uk

City of Gdansk

Economic Policy Department

Alan Aleksandrowicz (Deputy Director)

ul. Nowe Ogrody 8/12

80-803 Gdansk, Poland

Tel.: +48 (0) 58 323 7104, +48 (0) 58 323 6223

Fax: +48 (0) 58 323 7117

e-mail: cob@gdansk.gda.pl

www.gdansk.gda.pl

Municipality of Evosmos

Chalkidikis Paniagiotis

Pavlou Mela 24 & Gravias

56224 Evosmos-Thessaloniki, Greece

Tel.: +30 (0) 2310-756000

Fax: +30 (0) 2310-709990

e-mail: voutsa.el@evosmos.gr

webmaster@evosmos.gr

www.evosmos.gr

Stadt Gera

Referat Wirtschaftsförderung und Europa

Thomas Seidel (Europabeauftragter)

Kornmarkt 12

07545 Gera, Germany

Tel.: +49 (0) 365 838 1195

Fax: +49 (0) 365 838 1295

e-mail: europabeauftragter@gera.de

www.gera.de

City of Gijón

Department of Economic Promotion and Innova-

tion (Departamento de Promoción Economica e

Innovación)

Local Agency of Economic Promotion and

Employment

Isabel de la Huerga Iglesias

Avenida de la Argentina 132, 1a planta ofc. 4

33213 Gijón (Asturias), Spain

Tel.: +34 (0) 985182954

Fax: +34 (0) 985308228

e- mail: proyectoseuropeos.alpee@gijon.es

www.gijon.es

76 77

Communauté d’Agglomération

Grenoble Alpes Métropole

Le Forum

Philippe Estieu

3, rue Malakoff

38031 Grenoble Cedex 01, France

Tel.: +33 (0) 476-595652

Fax: +33 (0) 476-423343

e-mail: philippe.estieu@la-metro.org

www.la-metro.org

Ville de Marseille

Mission Marseille Emploi

Pierre Chaillan, Olivier Rebeyrotte

Les Docks - Atrium 10.2 / 10, place de la Joliette

13003 Marseille, France

Tel.: +33 (0) 491 99 01 63

e-mail: pchaillan@mairie-marseille.fr,

orebeyrotte@mairie-marseille.fr

www.mairie-marseille.fr

Werk in West/

Centrum Ondernemen in Delfshaven

Benji de Levie (Director)

Heemraadsplein 19a

3023 BD Rotterdam, The Netherlands

Tel.: +31 (0) 10 476 22 23

Fax: +31 (0) 10 476 02 32

e-mail: delevie@werkinwest.nl, delevie@coid.nl

www.coid.nl, www.werkinwest.nl,

www.mentoraat.com

City of Venice

Department Economic and

European Policies Directorate

Francesco Bortoluzzi

San Marco 4023

30124 Venice, Italy

Tel.: +39 (0) 412748155

Fax: +39 (0) 412748055

email: attivita.produttive@comune.venezia.it

www.comune.venezia.it

Wiener Wirtschaftsförderungsfonds /

Vienna Business Agency

Internationales Wirtschaftsservice /

International Business Division

Mag. Burkhard Weiler

Ebendorferstraße 2

1010 Wien, Austria

Tel.: +43 (0) 1 4000 86796

Fax: +43 (0) 1 4000 86188

e-mail: bweiler@wwff.gv.at

www.wwff.gv.at; www.vba.at

Vilnius City Municipal Government

Department of Economics,

Economic Development Division

Danute Maksimaviciene (Head of Division)

Konstitucijos av. 3

09601 Vilnius, Lithuania

Tel.: +37 05 211 2210

Fax: +37 05 211 2265

e-mail: danute.maksimaviciene@vilnius.lt

www.vilnius.lt

Association for the Development

of West Athens (ASDA)

Directorate of Programming, Development

and Informatics

European Projects & International Relations Offi ce

Moskos Diamantopoulos (Director)

Ethnikis Antistasseos 65

121 34 Peristeri, Greece

Tel.: +30 (0) 210 5745826

Fax: +30 (0) 210 5759547

e-mail: urbact@asda.gr

www.asda.gr

II Financial SME Support

II.1 France Initiative Réseau: French public micro credit network of local platforms

Local platform loan funds average 632,000 Euros. Commitments represent 76%.Operating costs are mostly covered by public funding (83%).

Local platforms employ 645 people who represent 473 full time equivalent (i.e. 2 per plat-form).

Amount of FIR accrued loans (31/12/2004) M Euros %

Public origin

European funds

State

Regional Councils

County Councils

Municipalities

Caisse des dépôts et consignations (national public fi nancial institution)

Private origin

Businesses

Banks

Others

113.3

8.6

6.3

27.4

25.9

18.6

26.5

35.6

12.8

11.2

11.6

76.1

5.8

4.2

18.4

17.4

12.5

17.8

23.9

8.6

7.5

7.8

Total 148.9 100.0

FIR network operation budget 2004M Euros %

Public origin

European funds

State

Local authorities

Private origin

Businesses and banks

Others

20.5

3.7

5.2

11.6

4.2

1.5

2.7

83.0

15.0

21.0

47.0

17.0

6.0

11.0

Total 24.6 100.0

78 79

11,500 voluntary members work for the plat-forms, averaging 48 per platform with 17 in the board of Directors, 23 are members of the loan agreement committee and 17 are new entrepreneurs’ tutors.

In 2004, the local platforms have received 41,000 applications, prepared 15,000 projects, and presented 11,500 to the agree-ment committee. 9,200 loans without inter-est or guarantee, averaging 7,200 euros/loan were granted, which represent a trans-formation coeffi cient of 61%.

84% of these loans are geared to a bank loan with a leverage effect of 6 (1 Euro platform loan for 6 Euro bank loans)

In total, the new businesses received 64.9 M Euros loans from the platforms and 318.7 M Euros from the bank; they created 20,000 jobs.

The businesses that receive a platform loan have a mortality rate smaller than national average: 86% are still active after three years, 78% after four years (respective 64% and 47% for national average).

Since it started, the FIR network contributed to funding more than 49,000 projects.

Source: Micheaud 2005.

II.2 ADIE (Association pour le Droit à l’Initiative Economique): French pu-blic micro credit organisation

Since fi fteen years, ADIE target a specifi c population: the unemployed and the per-sons receiving the minimum social income, aiming at helping them to access the tradi-tional economy and banking system. Since January 2005, it is a public utility institu-tion.

ADIE provide support to new projects and grants loans without interest or guarantee and « solidarity loans » with their own fi nan-cial resources but also with borrowed funds as they have the necessary agreement.

At the end of December 2004, ADIE counted with 29 M Euros long-term resources, 87% own resources and 13% loans, to fi nance the loans they grant.

ADIE Long term resources (31/12/2004) M Euros %

Equity funds

Funds for loans without interest nor guarantee

Funds for loans

Capital

Bank loans

Bank loans

25.1

7.7

3.8

13.6

3.8

3.8

86.9

26.8

13.1

47.0

13.1

13.1

Total 28.9 100.0

ADIE Accrued loans 2004 M Euros %

Own resources

Loans without interest nor guarantee

« Solidarity » funds

Bank loans

Loans

17.3

7.6

9.7

3.3

3.3

84.0

36.8

47.2

16.0

16.0

Total 20.6 100.0

At the same date, the amount of accrued loans was:

80

ADIE operating budget is fi nanced with 90% subsidies, mostly of public origin.

ADIE Operation subsidies 2004 M Euros %

Public origin

European funds

State

Local authorities

Private origin

Private contributions

13.8

3.1

5.6

5.1

0.9

0.9

93.7

21.3

38.0

34.4

6.3

6.3

Total 14.8 100.0

III. Non-Financial SME Support

III.1 Defi nitions of Networks

Defi nition used in this report:

A network of enterprises can be defi ned as an organisational form on operational level aiming at the realisation of competitive advantages which is characterised by rela-tively stable relationships between legally independent enterprises.

Differentiating types and defi nitions of networks:

• Regional Clusters are a geographically bounded concentration of independent fi rms. They have active channels for busi-ness transactions, dialogue and com-munication and are generally based on specifi c areas of technology or trades.

• Local networks consist of independent fi rms cooperating with other fi rms, R&D institutes, associations, etc. They often cooperate in production systems and mostly use a common technology base or the same material source, through which the fi rms in the area are connected.

• Cooperation between independent fi rms, R&D institutes, associations, etc. focussing on specifi c types of Know-How is defi ned as a competence network. The cooperation is not limited to geographi-cal areas (in contrast to the cluster).

• Cooperation networks are independent enterprises that actively and directly work together with other fi rms, R&D institutes etc. along the chain of value production. They are aiming at concrete economical success in their transactions. Partners are often found by means of a SWOT-analysis of the individual require-ments (Müller 29.06.04).

III.2 Entrepreneurs and Networks

To consider what the relevant network sup-port activities would be for entrepreneurs, it is necessary to differentiate the type of entrepreneur and his business. In this an-nex, based on a practical input from the City of Rotterdam, validated by all ECO-FIN-NET partners, the needed differentiation is ex-plained.

In the day to day practice of network sup-port there is a huge differentiation in the entrepreneur-network relation. These are explained by the following factors:

1. Company nature (industry or branch, of-ten linked to other issues, such as site) and company age (starting, re-starting, or established)

2. Company size (even within the whole of smaller companies)

3. Personal characteristics of the entrepre-neur (age, training, ethnicity)

4. External conditions (economic tide; gov-ernment initiatives)

1. Company nature:

The more entrepreneurs depend on other entrepreneurs for their exploitation, the more they value contacts and networks. Roughly these can be divided in two forms also representing two poles of possible re-lations: an intensive relation and a more loosely knit one.

A good example of the last type we can fi nd in business professions, especially in the creative industry, and more specifi cally in professional groups such as designers, ICT professionals, etc. These entrepreneurs are often young, with a higher educational level and comparably more autochthonous, and demonstrate the characteristics of their generation and culture; zapping between different groups and meetings; shopping from the offer that appears most relevant to them at the time; unbound and independ-ent; proud of their product, service or skills; and very capable of formulating the demand for their business and establishing rela-tions. In addition, these entrepreneurs are better and more often than others capable of entering permanent and intensive part-nerships; using the same building; produc-ing one product; rendering a common offer; performing a common promotion.

A mentoring service1 is snapped up: their core competences are not questioned, it is free without being free of engagement, and leaves decisions to the entrepreneur. Work-shops (acquisition, cooperation, binding customers, etc.) are just as popular because

ADIE employ 287 people, which represent 235 full time equivalent.

700 voluntary members participate in the loan commitment committees and the new businesses monitoring.

In 2004, ADIE granted 5,587 « solidarity » loans amounting to 16.2 M Euros, fi nancing 4,680 businesses and the creation of 5,616 jobs.

The business mortality rate is higher than the national average but remains very en-couraging: 54% are still active after 3 years against 64%.

Since it started, ADIE contributed to creat-ing 25,000 businesses.

The associative networks proved their eco-nomic interest with their contribution to cre-ating new businesses, but also their social dimension with their capacity to integrate people in diffi cult situation into the tra-ditional mainstream economy and to give them dignity.

The majority of the new businesses only employ the entrepreneurs themselves, with possibly one employee. It sometimes hap-pen that a new business develops rapidly: for instance a project funded by an ADIE « solidarity loan » of 3,000 Euro developed into a business with a 420,000 Euro turno-ver and employing 27 staff.

Source: Micheaud 2005.

Within this group there are course differences

between the various industries: e.g. in the

graphic sector people are looking for mutual ex-

change of experiences; web site designers and

related companies would like to meet entrepre-

neurs having additional expertise. For support

organizations this group demands personal,

interested, often intensive, and surely informal

contacts; and a creative offer of workshops,

network meetings, and occasions providing

information, etc.

81

1 Like Mentorraad in Rotterdam

82 83

they offer additional know-how, don’t take more than just one or two evenings, include networking and contacts with other entre-preneurs, and are not too “diffi cult” (fi nance management, credit management, etc. are much less asked for). Because of the nature of their business many of these entrepre-neurs are not bound to any specifi c site (the rent and/or the presence of fellow entrepre-neurs are determining factors). They value personal -close- relations, but their buyers sometimes are abroad.

Where entrepreneurial creativity becomes less important and traditional methods prevail (especially but not exclusively, construction and life style related profes-sions); and often when private principals are involved, entrepreneurs are hardly in-terested in workshops, network meetings, presentations, etc. Generally speaking these entrepreneurs are a little older than the more creative professionals, have a lower educational level, and are of a more mixed -although mostly autochthonous ori-gin. There are usually too busy to do any-thing more than their profession - often are already overloaded. Still many of them feel the need of business relations to provide, e.g., additional orders (carpenter and paint-er; plumber and fi tter; architect and interior designer, etc.). These entrepreneurs hardly visit any network meetings (entrepreneur cafés); they seldom go to workshops; bind-ing them requires linking a very explicit and very direct (fi nancial and economic) added value to such activities.

Although they seem to be closely linked to this sector’s entrepreneurs, there is a group which cannot be bound, never attends any meeting or activity (even though they some-times do register), and does not seem to be interested in any cooperation. This group includes companies as various as odd jobs services, cable pullers, and scaffold-

ing builders, but still entrepreneurs with a number of corresponding characteristics: mostly of ethnic minorities origin, with a low educational level, little (permanent) personnel, and largely complaining about the lack of orders. This corresponds to the characteristics one sometimes fi nds with re-tailers, but their presence in the quarters is less visible and traceable.

The (smaller) retail / trade entrepreneurs are probably the group that’s the hardest to organize. They have one common interest: a safe, clean, and well-maintained (shop-ping) street. However, they are a very mixed group as to age, origin, and -to a lesser ex-tent- educational level (generally not very high). They not only have a limited physical action radius (stuck in their own shop), but also psychologically speaking: they mainly consider each other as competing on the consumer’s Euros; there is a lot of suspi-ciousness; free-riders prevail; the govern-ment is a boogieman and scapegoat alike, while also responsible for fi nding solutions.

Supporters and intermediaries are seen as part of that government, irrespective of their formal role. Because these entrepreneurs seldom tend to get out of their shops (or are incapable to do so), and because they also have to work in the evening -administration, purchase and accounting- one will seldom fi nd them at meetings, workshops, etc. They can only be reached by visiting them and by being very patient; customers al-ways come in the fi rst place. Of course their organizational hat-rack is the said common interest plus concrete issues, such as the or-ganization and safety in the shop. However, reaching this awareness is a painstaking ef-fort; every minor disappointment leads to a much faster return back to ground zero. As the government often is quite eager to or-ganize these entrepreneurs, to have a con-tact, and to maintain the level of facilities for the residential quality of the area –and because those organizations have a mini-mum capacity to take care of themselves- it is forced to relatively larger investments in these entrepreneurs than in other ones. The best way to do this is fi nding stronger entre-preneurs (the “little pearls”), and bind them by facilitating them to fulfi l a leading or ex-emplary role. It is essential in this respect that these entrepreneurs are representative and recognizable for their specifi c indus-try (company size, origin, branches), and a democratic mandate is given.

2. Company size:

Many Urban-areas have few larger compa-nies. A number of these fi rms have their reg-istered seat here but are working elsewhere, mostly at their buyer’s site. Those scarce larger companies that do operate locally are -with some exceptions- not interested in lo-cal networks and entrepreneurs’ facilities. They are mostly nationally organized and associated with one of the national lobbies. Occasionally buyers and business relations come from local (sub-municipal) authori-ties. But more frequently these companies can be approached with an appeal to their civil responsibilities, their image, or their specifi c expertise or location.

Finally, larger small companies sometimes do operate locally, but they mainly have ur-ban networks, and mostly have the exper-tise that service and network providers offer to others through workshops and meetings. As they posses expertise, and could fulfi l a role model and may exchange relevant ex-periences. Service providers could try to get them into sub-municipal networks.

The smallest companies are of course start-ing entrepreneurs. In this highly mixed group there are many who are eager to learn and curious for new information, however not all of them. Many -again mainly from industries such as retail trade, hospital-ity business, and personal services- are only focused on their work and canvassing customers, without too much refl ection on things as focused promotion, unique selling points, a sound administration and profes-sional operating practices.

When contact is achieved much enthusiasm can be generated. Sometimes it is even nec-essary to canalize this enthusiasm, to pre-vent the starting entrepreneurs looses grip. In this fi rst operational stage the entrepre-neurs’ interest in networking and relations can surely be wakened, even though they represent a large variety of industries and personal characteristics: they are very eager to learn - also from each other and with each other. After a while their interests may grow apart, and the entrepreneurs must be led to other networks and organizations that may then be of their interest.

3. Personal characteristics:

Generally speaking one could say that the entrepreneur’s personal characteristics en-force or weaken general trends.

In the practice of the ECO-FIN-NET-cities younger entrepreneurs seem to be more interested in networks than older persons, especially when they go beyond their direct personal interest. And entrepreneurs with higher education are more interested than people with a low educational level. Mi-grants display signifi cant differences.

A good example of this is the ‘Ondernemer-

skring Bouw’ [Constructional Entrepreneurs’

Circle] established by COiD –upon instigation

of an entrepreneur-, to which almost twenty

entrepreneurs from several professional groups

have associated and know how to fi nd each

other if needed; they are going to build a com-

mon web site, and organize quarterly meetings

with a speaker addressing all members. For the

organizational part COiD (naturally; unfortu-

nately) cannot be missed. These entrepreneurs

often have a wide operational fi eld (city and

surroundings) but seek their network partners

in their own city quarter.

In Rotterdam these are the enterprises where

Mentorraad tutors could be recruited, but also

event sponsors, speakers at meetings, company

visit hosts, or members of a(n) (economic) coun-

cil. They expect a very professional and busi-

ness attitude from service and network support

organisations.

In Rotterdam therefore one of the (strategic)

targets for the next years is developing an offer

for this group of long-term established entre-

preneurs who already have the most important

expertise, or know where to get it. They are too

small to have dedicated external relations of-

fi cers, but are of signifi cant importance – were

it only to keep them in the quarter and maintain

the employment they offer.

A down side in Rotterdam is perceived in the

load of information entrepreneurs get as soon

as they registers themselves with the Chamber

of Commerce. Entrepreneurs get loads of offers

from banks, accountancy offi ces, commercial

companies, and not for profi t organizations.

This fl ood often has a paralyzing effect: all

information is set aside, making it even harder

for a service provider to inform entrepreneurs of

its own information and/or invitations; at least

in – let’s say – the fi rst six months.

As an example from Rotterdam see the follow-

ing picture:

Where a “culture of suspiciousness” prevailed

in their country of origin (Moroccan rural ar-

eas), any form of organization seems to be

unacceptable – perhaps except for those who

consider the organization as such a commercial

challenge; in countries of origin demonstrating

clearly defi ned groups (religious, political and

ethnic groups in Turkey; Hindustan groups in

Surinam), this seems to be continued in compa-

rable organizational structures; where groups

have stronger historic roots with the country

of residence (Creole Surinam population,

Southern-Europeans), these characteristics are

not substantially different from those of com-

parable autochthonous entrepreneurs; while

Chinese entrepreneurs are a separate category,

due the closeness of their organizations.

84 85

4. External conditions:

The possibilities and problems in organ-izing entrepreneurs into networks are also depending on external conditions. These conditions may play a stimulating or an im-peding role - and differ with regard to the various groups of entrepreneurs.

For example, an unfavourable economic tide raised more interest for network meetings –meeting prospective customers and part-ners, gaining expertise- and workshops with the “creative sectors”: suddenly only their own skills appeared insuffi cient, one has to sell them (acquisition, fi nding customers, binding customers, etc). But also for a less frivolous and non-engaging character of the meetings: clearly people want learn some-thing from these events. Supporting organi-zations must sense and anticipate to these developments with an appropriate offer.

In the retail trade sector unfavourable economic developments and the resulting decreasing consumer’s spending capac-ity provide a completely different reaction: more serious price competition, increased focusing on the own shop, and more work-ing hours (extended opening hours, seeking lower purchase prices, in-house accounting and administration, etc.), and a decreasing

willingness to cooperate, engage external contacts and gaining know-how. The reac-tion towards intermediary persons and sup-porters is as expected: passive and looking at these externals to resolve their prob-lems.

Especially for the retail trade sector and location-bound activities such as garages, workshops, etc. there are also other as-pects which may impact the community awareness, and possibilities for impacting cooperation and organization - especially concerning outdoor activities, and more specifi cally urban and street renovation.

Such government initiated and/or per-formed interventions can have a very dis-ruptive effect on business and turnover - so one must anticipate these developments by informing, organizing and actively involving entrepreneurs: as a government contact, when formulating alternatives, as a moni-toring board, etc. A successful campaign (i.e. limiting any damage, but also improv-ing parking facilities, creating loading and unloading zones, etc.) will even convince retailers -be it temporarily- of the use and necessity of cooperation. Especially under such circumstances fi nding pioneers among entrepreneurs, facilitating and retaining them is of vital importance.

IV Sources

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