SME financing and European capital markets: understanding the rationale for reform

The aim of this chapter is to articulate the rationale and recommended models for reform in facilitating SME financing through capital markets. By specific reference to European Union markets, the chapter argues for graduated and transitional steps for SMEs prior to public listing. The chapter contends that pre-listing mechanisms, such as sandboxes, can be vital in enabling SMEs to progress through stages of growth towards eventual listing on regulated markets. Policy initiatives, such as European Capital Markets Union, include an array of measures designed to benefit SMEs. However, the chapter emphasises that broad policy agendas may not fully recognise the challenges confronting different types of SME with differing levels of growth and differing funding requirements. There are evident obstacles for SMEs in accessing market financing. As particular examples of reform, pre-listing measures can be flexibly utilised by firms in accordance with their needs. Such reforms should be accompanied by targeted alleviations of existing market requirements and by continued efforts to cultivate diverse financing sources. By focusing on the necessity for pragmatic reforms in an EU context, the chapter promotes the value of having an evidence-based understanding of the concerns of varying forms of SMEs when seeking suitable financing.