Impact of Financing Conditions on SMEs Performance

This technical report examines the influence of financing conditions on the performance and transformation of small and medium-sized enterprises (SMEs). It discusses how both internal and external funding difficulties affect SMEs' investments during normal periods and economic shocks, such as the COVID-19 pandemic and energy crisis. The analysis utilizes survey data from the European Investment Survey and employs a regression adjustment treatment effect approach to differentiate between structural barriers and cyclical challenges in financing. The findings indicate that SMEs, particularly micro and small firms, face significant vulnerabilities due to deteriorating funding conditions, which can hinder their growth and investment capabilities. The report emphasizes the need for policy support to address these structural financing impediments, especially for firms lagging in digitalization and green investments. It concludes by highlighting the long-term implications of missed investment opportunities on competitiveness and productivity within the broader economy.