Out of credit: Evaluating the impact of the EU structural funds on Hungarian small business growth and access to finance

Totaling EUR 29 billion, Hungary is in the midst of implementing its largest economic development program in its young democratic history. At the center of the European Union led development program is an effort to revitalize and reequip Hungary’s languishing small and medium sized enterprises (SME), long the country's heart of employment. This paper examines the efficiency and impact of two Structural Fund's instruments to enhance SME development – ECOP 2.1.1 and JEREMIE. A survey of 1275 SME and interviews with dozens of top policy-makers paint a flawed development program in dire need of reform. Despite this, empirical analysis suggests JEREMIE funds may have dampened the effects of the financial crisis and are crucial for the continued liquidity of SME, who have been particularly hit hard by the world financial crisis.

The financial stability and access to financing of SMEs in Hungary

The present study was prepared within the framework of cooperation between the Competitiveness Research Centre, operating within the Institute of Business Economics of Corvinus University of Budapest, and the National Association of Entrepreneurs, based on a commission from the latter. Th e goal of the study was to survey the self-financing capabilities and borrowing opportunities of majority Hungarian-owned small and medium-sized enterprises (SMEs), and to identify potential problems. The results of the research revealed that the high proportion of owner’s equity in the financing structure is not due to difficulties with borrowing, but because enterprises that cover their fi nancing primarily from their own resources have other financing opportunities at their disposal. Although general satisfaction with banks shows a diminishing tendency, it can still be interpreted favourably. The majority of companies have not encountered serious borrowing difficulties. With regard to the system of competitive tenders, company managers have sensed some improvement, but general satisfaction is still lacking. Although the research results suggest that the primary obstacle to growth in 2013 was not the lack of credit or external funding, it is important to emphasize that start-ups, young enterprises and micro-enterprises, which struggle the most with financing worries, were not represented in the analysed database.