How to Encourage Growth in Small and Medium-sized Enterprises

In the business world, it is often the bigger brands and corporations that capture the attention. Global names dominate the landscape and benefit from significant recognition from consumers and the public at large. It is, however, underestimating the crucial role that small and medium-sized enterprises (SMEs) perform in both established economies and developing countries.

SME growth

Even so, SMEs can often find it tough to grow as a business – not least in times of uncertainty. For business owners, this is nothing new. But the difficulties that smaller business owners now face due to Covid-19 is putting the fortunes of SMEs into the spotlight. And it asks the burning question: what can be done to encourage and support the growth of SMEs around the world?

The place of SMEs in the wider economy

SMEs are the economic workhorse of economies around the world. In the global context, SMEs account for more than 50% of all employment worldwide. For developing economies, their role cannot be underestimated. According to the World Bank, “formal SMEs” contribute as much as 40% to GDP in those countries. So, a growing world population means a need for more SMEs.

On a national level, statistics from the Federation of Small Businesses explain how SMEs make up almost all (99.9%) of the UK business population. Three-fifths of private sector workers are employed by a smaller company – with SMEs representing around half of the UK economy. You can see, therefore, how SME growth is essential on both a national and international level.

How access to finance is a critical factor

One barrier that stands in the way of growth for many SMEs is the access to finance. From late payments to other cashflow concerns, readily available funding support is a crucial lifeline for a lot of business owners. But data from the UK reveals that high street banks are not providing a level of support that encourages growth. And this was a factor long before Covid-19 arrived.

It is believed that UK SMEs are experiencing a funding gap worth as much as £22bn. The good news is that alternative providers are stepping up to address that. The gap is a significant one, however, and calls for a much greater effort to plug it. And it’s just a single snapshot from one of the most developed economies. Globally, that funding gap is thought to be more than $5tn.

Can changing policies drive SME growth?

Of course, it’s within the power of governments to create environments in which SMEs can look to grow. For SMEs, it can be harder to access resources and skillsets that can drive productivity than larger businesses – even if the market conditions are favourable. What governments must look to do in the first instance, therefore, is boost confidence and create vital support networks.

From public-private partnerships to long-term business education, there are a number of ideas put forward and recommendations that have been made to achieve SME growth. But, while the theory often sounds good, the reality is rarely that. Access to global markets is much improved, for example, but there remain regulatory and cost barriers that still remain.

Still, the fact that governments recognise the contribution of SMEs and express a desire to help drive growth is a positive step. The UK, for example, has a Small and Medium Enterprise Action Plan to achieve this. But the disruptive influence of Covid-19 worldwide only highlights further a need to better support SMEs – so they increase their positive impact on people and economies.

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