Financing Small Businesses: The Agony of Securing Funding

The main purpose of this chapter is to shed more light into the challenging small business (SME) task of securing adequate and appropriate funding for continued viability. Access to finance is of fundamental importance to SME survival, invariably it involves working capital needs or long-term capital projects. This chapter will mainly focus on the Greek environment and the individual characteristics of the domestic market, in particular. As in most countries, SMEs form the backbone of Greece’s economic activity, accounting for almost 95% of the total. They are the very backbone of the country’s daily business and labour force. Crucially, the Greek banking system upon which many small enterprises rely has collapsed during the years of global financial crisis, with the domestic banks literally ending up completely drained of all available liquidity.

In a country that has gone through enormous financial turmoil, and with a damaged banking system that has undergone three recapitalisation processes, domestic companies had little, if any, support from the traditional banking sources. In the summer of 2015, things became critical, when the country almost left the European Union’s (EU) common currency zone and entered a capital control regime. As a result, enterprises sought other channels of financing to overcome the obstacle. Focus in this chapter will be on the role of the stock market, the national investment funds and the EU funding.

This chapter, in the main, builds insight from a research-informed case study: that of Greek SMEs and their access to finance (excluding the banking sector). The time span of the analysis covers the years of the domestic financial crisis, lasting considerably more than within the other European countries. Though varying in magnitude, the crisis in Greece started sometime in 2010 and concluded in 2018, leaving deep scars on the country’s productive body. During that period, the domestic banking system underwent catalytic changes, embracing three major recapitalisation schemes and an enormous merger phase that ended up with only four remaining systemic banks. Prior to that, the 2012 Private Sector Involvement (bailout program) led the country’s rating to a default status and made financing options extremely difficult.

This chapter will also offer comparisons to other European states, to enable drawing of conclusions about the different operating parameters of doing business in the greater region; and to facilitate search for common patterns between the countries that were hit by the credit crunch and also saw their banking systems weaken. The data will be drawn exclusively from secondary sources, including national and European public and private organisations dealing with financial and investment analyses. Once gathered, data is categorised and critically evaluated to look deeper into the nature of the behaviour of SMEs and the financing channels they have found during the study sample period.

Key findings will include the reporting and the evaluation of Greek firms’ access to finance with regard to non-banking sources, such as the stock market, EU funding, investment laws and venture funds. Comparison with prior years and with other European markets will show the main challenges and obstacles firms faced, and the solutions they found during the crisis.

Limitations can be split into two categories: first, the data reported at public and private sites include by default the official sector of the economy, thus, omitting the reporting of parallel or unofficial market activity. In an economy that includes approximately 20% of unofficial GDP, such sources most probably proved catalytic in the companies’ liquidity, without being officially reported. Second, the time span of the sample is quite large, making it difficult to analyse the specific characteristics of various companies at various time points in full detail. However, the chapter’s main purpose is to offer an all-inclusive picture of how things evolved during the years of the crisis and not to focus on specific points. Describing the big picture is the priority of this chapter, with a focus on capturing the financing trends during this period of abnormality. Perhaps a further study in the future could be inspired by this current one, to break-up the period into smaller pieces and dedicate detailed analysis to each chunk. Useful conclusions will be drawn in this chapter for policy-makers, including both fiscal and monetary directors, who will get a clearer picture of how the credit crunch influenced the market, and how SMEs worked their way through these challenging times to find ways to finance their operations, development and growth. The major contribution of this chapter is it being the first to cover SMEs exclusively during all years of the financial crisis in a country like Greece that has seen its banking sector collapse. Firms were left without their traditional source of funding, the next-door bank, and managed to find alternative routes to finance to survive and keep on going.