Financing Micro Firms in Europe: An Empirical Analysis

The vast majority of firms in Europe are micro firms. This EIF Working Paper investigates the financing patterns of these enterprises. Improving the understanding of micro firms’ financing patterns can help policy makers to provide tailor-made support for these types of firms. 

Based on a large European company-level data set, the paper finds that micro firms differ in their financing patterns from small and medium-sized companies. Micro firms are more likely to use internal financing instruments, and less likely to use state subsidies, trade credit or asset-based financing instruments. Furthermore, micro firms differ from medium-sized firms by using more short-term debt (credit card overdrafts, credit lines and bank overdrafts).

These research results will enable better assessments of the consequences of policy changes, particularly as regards micro firms. The results indicate that, in addition to facing difficulties accessing external financing in general, micro firms also encounter challenges when it comes to receiving government grants or subsidised bank loans. Given micro firms’ importance in the economy, these issues can be seen as signals of market weakness and highlight the need for further public support for these types of companies.