{
  "title": "Making Small Beautiful Again: The Challenge of SME Problem Loans in Europe",
  "publication": "IMF Blog, March 31, 2015",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2015/03/31/making-small-beautiful-again-the-challenge-of-sme-problem-loans-in-europe",
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  "summary": "Six years after the global financial crisis, Europe continues to be weighed down by high levels of corporate debt and millions of nonperforming loans.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Six years after the global financial crisis, Europe continues to be weighed down by high levels of corporate debt and millions of nonperforming loans.\n- Small and medium-sized enterprises (SMEs) bear a disproportionately heavy burden: their nonperforming loan ratios are on average more than double those of larger corporates.\n- SMEs comprise 99 percent of all businesses and employ nearly two of every three workers in Europe.\n- Addressing SME problem loans could lay the foundation for a more robust and sustainable economic recovery."
    },
    {
      "heading": "SME definition and structural obstacles",
      "content": "- SMEs in Europe are defined as employing fewer than 250 people and having annual sales of less than € 50 million.\n- Factors that make resolving SME distressed loans harder:\n  - Large loan volumes relative to firm scale.\n  - Limited financial data about SMEs.\n  - Concentration of talent and responsibilities in a few key people (management, shareholders, and employees).\n  - Lack of expertise in restructuring.\n  - Costly or complex insolvency regimes.\n  - Higher costs of distressed financing.\n- Strict insolvency laws can deny owners of failed businesses the opportunity to start afresh, dampening entrepreneurial activity.\n- SMEs face the same macro constraints as larger firms: cash-strapped banks, weak insolvency systems, and inadequate legal enforcement tools."
    },
    {
      "heading": "Policy actions undertaken",
      "content": "- Some governments have reformed insolvency regimes, including promotion of out-of-court workouts.\n- Countries cited that have strengthened supervision of problem loan management in banks: Cyprus, Greece, and Ireland.\n- The Single Supervisory Mechanism, led by the European Central Bank, is expected to harmonize nonperforming loan management oversight throughout the Eurozone.\n- Governments have created tax and other economic incentives to:\n  - Encourage SME debt restructuring.\n  - Facilitate SME access to financing.\n- The European Commission has created targeted programs for SMEs and begun providing legislative guidance to member countries.\n- Despite these measures, the pace of resolving SME problem loans remains too slow.\n- IMF staff published a paper collating experience and proposing practical policy solutions."
    },
    {
      "heading": "Policy recommendations and practical measures",
      "content": "- Devise a comprehensive, coordinated strategy combining macro and microeconomic support, including:\n  - Insolvency reforms.\n  - Enhanced banking supervision.\n- Consider introducing simpler, more cost-effective insolvency procedures tailored for small firms—time-sensitive approaches are crucial because while creditors deliberate, the value of a business declines (\"like arguing on how to divide a melting ice cream\").\n- Promote \"enhanced\" out-of-court workouts, which may include some judicial elements or mediation, to restructure debt more quickly and more cheaply.\n- Ensure reforms allow entrepreneurs of failed ventures to shed unsustainable debt and make a fresh start, subject to reasonable safeguards.\n- Strengthen banking supervision to incentivize banks to:\n  - Exit quickly from nonviable firms.\n  - Assist in restructuring viable but distressed firms."
    },
    {
      "heading": "Key statistics and facts",
      "content": "- SMEs comprise 99 percent of all businesses in Europe.\n- SMEs employ nearly two of every three workers in Europe.\n- SME definition: fewer than 250 employees and annual sales of less than € 50 million.\n- Publication date: March 31, 2015.\n\nSource: Making Small Beautiful Again: The Challenge of SME Problem Loans in Europe (Yan Liu, Kenneth Kang, Dermot Monaghan, Wolfgang Bergthaler; March 31, 2015).\n\n---\n\n Content in this bundle\n\n- Staff Discussion Note\n  - Staff Discussion Note (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Staff Discussion Note (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- https://www.imf.org/wp-content/uploads/2015/03/eur-on-sme.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2015/03/31/making-small-beautiful-again-the-challenge-of-sme-problem-loans-in-europe"
    }
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    "Authors: Yan Liu, Kenneth Kang, Dermot Monaghan, Wolfgang Bergthaler",
    "Published: March 31, 2015",
    "Six years after the global financial crisis, Europe continues to be weighed down by high levels of corporate debt and millions of nonperforming loans.",
    "Small and medium-sized enterprises (SMEs) bear a disproportionately heavy burden: their nonperforming loan ratios are on average more than double those of larger corporates.",
    "SMEs comprise 99 percent of all businesses and employ nearly two of every three workers in Europe.",
    "Addressing SME problem loans could lay the foundation for a more robust and sustainable economic recovery.",
    "SMEs in Europe are defined as employing fewer than 250 people and having annual sales of less than € 50 million.",
    "Factors that make resolving SME distressed loans harder:",
    "Strict insolvency laws can deny owners of failed businesses the opportunity to start afresh, dampening entrepreneurial activity.",
    "SMEs face the same macro constraints as larger firms: cash-strapped banks, weak insolvency systems, and inadequate legal enforcement tools.",
    "Some governments have reformed insolvency regimes, including promotion of out-of-court workouts.",
    "Countries cited that have strengthened supervision of problem loan management in banks: Cyprus, Greece, and Ireland.",
    "The Single Supervisory Mechanism, led by the European Central Bank, is expected to harmonize nonperforming loan management oversight throughout the Eurozone.",
    "Governments have created tax and other economic incentives to:",
    "The European Commission has created targeted programs for SMEs and begun providing legislative guidance to member countries.",
    "Despite these measures, the pace of resolving SME problem loans remains too slow.",
    "IMF staff published a paper collating experience and proposing practical policy solutions.",
    "Devise a comprehensive, coordinated strategy combining macro and microeconomic support, including:",
    "Consider introducing simpler, more cost-effective insolvency procedures tailored for small firms—time-sensitive approaches are crucial because while creditors deliberate, the value of a business declines (\"like arguing on how to divide a melting ice cream\").",
    "Promote \"enhanced\" out-of-court workouts, which may include some judicial elements or mediation, to restructure debt more quickly and more cheaply.",
    "Ensure reforms allow entrepreneurs of failed ventures to shed unsustainable debt and make a fresh start, subject to reasonable safeguards.",
    "Strengthen banking supervision to incentivize banks to:",
    "SMEs comprise 99 percent of all businesses in Europe.",
    "SMEs employ nearly two of every three workers in Europe.",
    "SME definition: fewer than 250 employees and annual sales of less than € 50 million.",
    "Publication date: March 31, 2015.",
    "**Staff Discussion Note**",
    "[https://www.imf.org/wp-content/uploads/2015/03/eur-on-sme.jpg](https://www.imf.org/wp-content/uploads/2015/03/eur-on-sme.jpg)"
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