SMALL BUSINESS FINANCING IN CEE – THE CASE OF POLAND
Robert Ruminski University of Szczecin Faculty of Management and Economics of Services Szczecin, Poland
SUMMARY This paper is concerned with SMEs in developing economies. The principle topic focuses on the development as well as financing for micro, small and medium enterprises in Poland - one of the fastest growing EU economies and the 9th largest country in Europe. The issue of growth and development perspectives of small businesses, their role in growth creation in Poland, as well as the access to financial resources are discussed. Special emphasis is put on direct funding to SMEs and their access to bank loans. Moreover, macro- and microeconomic determinants influencing the development of SMEs, influence of the recent financial crisis on the growth of enterprises as well as factors conditioning business activity in Poland are taken into consideration. Poland is seeing positive rates of development despite the economic downturn and its high level of competitiveness, strong economic fundamentals and high flexibility will allow to benefit from the global recovery over the next few years.
Keywords: SMEs development, Polish economy, entrepreneurial finance, bank financing,
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INTRODUCTION The financing of small and medium enterprises (SMEs) has been a subject of great interest both to researchers and policy makers due to the significance of SMEs in free market economies around the word. They constitute the dominant form of business organization, accounting for 95-99% of enterprises depending on the country. Small businesses are particularly important for bringing innovative products or techniques to the market. They play a vital role in both developing and well-developed economies and are perceived as those creating new jobs and enhancing competition. They are recognized as an engine of economic growth and a source of sustainable development. Within this sector micro and small-enterprises are of special importance and they are considered as the cradle of entrepreneurship, particularly in environments facing high unemployment. Stable and fast development of SME’s is not possible without relatively easy access to financial sources. Their small turnover does not allow to self-finance their activity by reinvesting profits. Therefore, SME’s are forced to use alternative financial instruments provided by financial intermediaries (8).
In an analysis of the access to external sources of financing one may use the concept adopted by the World Bank (22), according to which a wide access to external sources of financing means there are no price and quality barriers in the use of financial services, while funds are awarded on the basis of a real credit rating of a business entity and it is done in a strictly competitive environment with the application of the highest financial standards and available technologies.
The problem of access to external sources of financing for enterprises can be presented as follows (1,2): physical lack of financial products offered by markets, or their limited number, complicated bureaucratic procedures, resulting from the multiplicity of documents required by financial institutions, high costs of obtaining financial support, disproportional to the actual degree of risks that enterprises represent,
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infrastructural deficiencies causing uneven distribution of capital, concentrating its activity only in capital urban centers, inadequate legal solutions limiting financial markets development.
A correct diagnosis and removal of barriers that enterprises face in acquiring external sources of financing constitute a major challenge for state authorities and other organizations supporting the sector. It is of particular significance in developing countries, where the practices in use sometimes differ from the standards and norms adopted by developed countries, and where access to funds is a problem with which enterprises need to struggle in their everyday operations.
THE ROLE, STRUCTURE AND DEVELOPMENT PERSPECTIVES OF THE POLISH SMEs SMEs have a special place in Polish history. Transformation of political and economic system of Poland in the late 80’ heavily influenced the formation of private sector. At the time of restructuring the national economy the importance of small businesses grew significantly(9). The process of restructuring included the transformation of centrally planned economy into free market economy accompanied with macroeconomic changes related to economic growth, replacement of the command mechanism with market mechanism and privatization. Many changes and processes that took place in large companies would not be possible without fast development of SMEs. A fast development of private small business sector was conducive to the development of competition and to the process of dynamic privatization. SMEs brought the benefits of flexibility and responsiveness as well as innovation and stability to the local economy. Entities of that size became one of the key elements of the new Polish economy and are currently a driving force and a key part of the entrepreneurial landscape in Poland. Moreover, the EU accession has brought more stability, greater market access and an unprecedented level of financial assistance for development of Polish SMEs.
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At the end of 2009 the number of non-financial enterprises in Poland amounted to 1.674 m. In relation to 2008 the figure demonstrated a decrease by 6,4%. SME’s constitute a great majority of that number, i.e. 98.9% of the total. Microenterprises form the most numerous group among them, constituting 95.9% of the entire population. The biggest number of companies in Poland represents a commercial sector (30%), followed by construction companies – 13.5%, industrial ones – 11.1%, companies conducting scientific and technical activities – 10.9%, transportation enterprises – 7.9%, companies providing medical care and social aid – 7%. The remaining sectors do not exceed 5% of the share in the total number of enterprises. 52% of the total number of the employed work in small enterprises, out of which 40% in microenterprises. Whereas medium enterprises provide employment for less than 19% of the total number of the employed (12,16).
The structure of enterprises in Poland is very similar to the entire population of companies in the EU, where the share of SME’s amounts to 99%. However, Poland differs in that it features a higher share of microenterprises, i.e. 95.9% in relation to the EU index of 91.8%. The market share of SMEs is very similar in Poland and in the entire EU. The importance of micro-enterprises in Poland is slightly higher than in the EU states – a statistical enterprise in Poland employs 2,2 people, while in the EU – 2,0. Microenterprises have a slightly higher share in the number of companies and gross added value of enterprises and a markedly higher share in turnover and the number of employees. Despite this, the productivity of micro-enterprises in Poland – measured with a gross added value generated by one worker – constitutes approximately one third (31%) of the results achieved by the EU companies and slightly more (41%) acc. to turnover figures (revenue) per person. The pace of changes has improved – all of the abovementioned figures for micro-enterprises in Poland, except remuneration, are growing faster than the average in the EU (16).
Comparing companies on account of the length of their existence, one may conclude that two thirds of them have been operating for longer than five years. In late 2009 approximately 13% had been in business for no longer than one year. A majority of 4
newly-established entities (99%) were microenterprises. Out of all the enterprises it is small companies that most frequently decided to switch their business profile in order to maintain and strengthen their market position. The economic slowdown in 2009 resulted in decreased investment dynamics in SME’s by over 6%. Companies based in large urban agglomerations of the northern, central and south-western parts of Poland (the voivodeships of Mazovia, Silesia and Pomerania) made the largest investment outlays (14,17). In the course of 2006-2009 the significance of own funds had been growing in SME’s investment financing (a rise in the share of that source of financing from 63,4% to 64,8%), the significance of budget funds (from 1,9% to 3,3%) as well as foreign funds (from 7,5% to 8,2%) and other sources (from 2,8% to 3,8%) recorded an increase as well, whereas the participation of national credits and loans was decreasing (from 21,8% to 18,5%). Own funds are committed to an investment financing on the grounds of an economic potential which correlates to the size of an enterprise. The larger the enterprise, the higher the committed funds. SME’s allocate the most funds to investments, as well as buildings and structures (51,6%). The smaller the enterprise, the larger the share of outlays on buildings and structures (small: 57,1%, micro: 52,6%, medium: 48,2%) and on means of transport (micro: 26,6%, small: 13,9%, medium: 12,2%). It results from a lower economic potential of small entities and the scale of costs involved in investments in this investment category (14,16). Diagram. SMEs Investment Breakdown in 2009 miscelanneous 0% technology park 31%
means of transportation 17%
buildings and construction 52%
Source: based on the Central Statistical Office (GUS) data http://www.stat.gov.pl/gus/index_ENG_HTML.htm 5
In the course of 2010-2011 entrepreneurs refrained from undertaking any major investments, which was the reason of, inter alia, the concerns for the economic future of Poland and of the euro zone. In the meantime companies are economizing, and their credit rating and liquidity are improving. It was observed that enterprises were also unwilling to take advantage of external sources of investment financing, which was manifested by their allocating first of all their own funds for that purpose – 92%. The second source of financing that companies preferred were bank loans – 46%, the third one was leasing – 32% (14,16). The Polish SMEs sector is still growing relatively fast. It may be expected, that the trend of development of SMEs will be similar to the one which can be observed in more developed countries.
THE GLOBAL CRISIS AND THE POLISH ECONOMY The recent global crisis has hit practically all countries in the world - both developed economies and high-growth emerging economies alike. It has affected all areas of economic life due to the complexity of the current financial systems and strong links between their particular elements as well as their role in stimulating demand and economic activity. In 2008 the financial crises began to affect rapidly growing Poland’s economy. It reflected in deteriorating GDP growth prospects (substantial slowdown of the economic growth), reduced bank lending activity and limited access to external financing. It has become the key reason for the economic slowdown observed in Poland since mid 2008. After Poland’s GDP increased by almost 3% in the fourth quarter of 2008, there was a further slowdown of the Polish economy during the first quarters of 2009. This slowdown mostly stemmed from waning demand and the decline of domestic demand was alleviated by the inflow of EU funds stimulating investment and by the depreciation of the Polish currency (PLN) against the EUR. In 2009 investment and domestic demand decreased by 0,3% and 0,9% respectively (15). Nevertheless, according to the national Central Statistical Office data (3), Poland was the only EU Member State that recorded a positive
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GDP growth at a rate of 1,7% in 2009 (compared to a considerably higher economic growth rate in 2008 which amounted to 5.1%) (16).
The Polish economy has faced a challenging external environment, in terms of both prospects for exports and external funding. The impact of the slowdown in global and European trade on the Polish economy has been fairly limited. The reason is that Poland is much more reliant on its domestic market than other countries in the region. That significantly helped in sustaining growth in the crisis. The Polish market is as large as the rest of the Central European countries together. The biggest threat for Poland was a possible withdrawal of foreign capital and problems with liquidity of the financial sector. In 2010 there was a GDP growth of 3,9% and in 2011 – 4,3% (26). Despite this challenging environment, Polish SMEs started to bounce back. In terms of economic growth, unemployment, inflation, consumption, the exchange rate and exports, the prospects for the next 2 or 3 years look good, although the growth rate will continue to be below the potential. An increase in the budget deficit and public debt has eventually forced the government to take definite budget restructuring and financial measures.
In December 2011, there were initial signs of a new credit crunch within the eurozone, with growth in credit falling and bank funding being withdrawn from central Europe. Real GDP growth in 2012 - 2013 will depend largely on the economic situation in other EU Member States and will differ significantly between Member States, but the Polish economy is set to grow at a high rate, despite many problems that may still appear.
FACTORS CONDITIONING BUSINESS ACTIVITY IN POLAND Nearly 70% of entrepreneurs describe the conditions of conducting a business in Poland as being difficult or very difficult. They chiefly complain about exceedingly complicated administrative procedures, vague regulations of the law and complicated fiscal system. They are reluctant to take advantage of external means of financing for their investments. In their view the easiest way is to use leasing, whereas obtaining EU funds can be a 7
highly difficult feat. It is worth pointing out that small and medium entrepreneurs have trust in financial institutions and it is chiefly from those institutions that entrepreneurs obtain all the necessary information with respect to acquiring adequate financing. A great majority of companies expects financial institutions to assist them in going through the procedures required to obtain financing, as well as consulting services with respect to choosing the form of financing (14). Diagram. The Evaluation of Conducting Business Activity by SMEs in Poland (%)
no answer 1%
rather difficult 48%
very easy 0% rather easy 7% very difficult 18% neither easy, nor difficult 26%
Source: based on TNS Pentor Report for Europejski Fundusz Leasingowy S.A. Warsaw 2011 The data presented above constitute a confirmation of reports prepared both by the organizations associating entrepreneurs in Poland, as well as by international institutions conducting research on enterprise operation in the world. “Doing business” drawn up by the World Bank (27) can serve as an example of such a report. Its last edition ranked Poland at the 70th place out of 183 countries surveyed with regard to evaluating the conditions created to entrepreneurs. The result must be seen as very poor. Apart from a few countries in Western Europe, countries of Central and Eastern Europe rank high in that listing, namely Lithuania (23rd place), Latvia (24th place), Slovakia (41st place), Slovenia (42nd place). Poland’s low position results from a general evaluation of the conditions carried out by the World Bank, however it is worth scrutinizing what the evaluation comprises. What is important is that out of all the categories the possibility of
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Polish entrepreneurs to acquire external financing was deemed to be high (Poland ranked 15th globally). The World Bank very highly evaluated the transparency of the law regulating contracting of obligations by companies as well as the accessibility of information on financing.
Poland fared much worse in other categories. While evaluating the difficulties in setting up a business the focus was on lengthy procedures at offices, while the assessment of fiscal policy towards entrepreneurs concentrated on the scale of various types of tax the companies pay into the state coffers (tax obligations amount to 42% of companies’ profits per annum).
Despite such serious obstacles entrepreneurs manage to overcome the difficulties and develop their businesses. A large proportion of entrepreneurs (42%) describe economic standing of their companies as good, or very good. A significant percentage (39%) recognizes the situation as being average. 14% claim that the situation in their companies is bad, while 4% perceive it as very bad. The largest percentage of businesses which favorably assess their economic standing were medium enterprises. Among microentrepreneurs the percentage of those recognizing the situation to be very good was the lowest (14).
Among the most serious barriers that small and medium entrepreneurs have to battle three fundamental areas emerge (4): 1) complicated administrative procedures (35% of responses), 2) vague and non-cohesive regulations of the law (33%), 3) high taxes and insufficient transparency of the state’s fiscal system (29%).
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Diagram. SMEs Financing Barriers in Poland lack of support from government
5%
negligence of contractors
5%
shortage of labor
6%
bureaucracy
6%
lack of funds for development low demand for products and services competition lack of financing opportunities hight cost of external financing high labor costs poor tax system unclear law
7% 8% 9% 11% 14% 16% 29% 33%
complicated administrative procedures
35%
Source: based on data derived from Centrum Badań Marketingowych INDICATOR, Finansowanie przedsiębiorców przez banki w 2010 i 2011r. (Report 2011) High labor costs in Poland were a significant barrier that SME’s mentioned (16%). Other factors listed included costs of financing that are high in SME’s view (14%), as well as lack of access to the sources of investment and operations financing (ever tenth respondent).
It needs to be pointed out that the evaluation of barriers differed depending on the size of an enterprise. The larger the company, the more problems it encounters with unclear and non-cohesive regulations of the law. Every fourth micro-entrepreneur mentioned this barrier, while in case of small and medium enterprises the figure reaches 40% (4, 28).
FINANCING SMEs DEVELOPMENT IN POLAND There is a large interest in understanding the access of SMEs to finance, particularly in the process of financing small entities. The financing patterns across countries are sometimes vague. The issues related to the process of SMEs’ external financing as well
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as their influence on capital structure are extremely important to small, fast developing firms.
Commercial banks are one of the most important financial capital providers to SMEs among different financial intermediaries offering capital for development. Small firms tend to be bank-dependent for external funds. The overwhelming majority of external financing for the SMEs sector within the European Union (including Poland) is provided by banks (19). The banking system for the financing of small enterprises has always been characterized by a short-term approach to secure lending and minimize risk. The bank relationship is extremely important – both for enterprises and banks (7). The proper and smooth financial cooperation between small firms and banks is a key element of their corporate financial management. Banks generally show lower interest in appraising projects and lending to start-ups and small businesses (6).
The confidence in the banking system has recently been undermined due to the world financial crisis. The main threats to the Polish economy were the following: dependence of the exchange rate of the national currency on short-term speculative investment, high public debt, a major dependence of production on imports.
As crisis developed, other factors gained importance, e.g. reduced bank lending, depreciation of the PLN and financial problems encountered by SMEs. Nonetheless, the situation of the Polish economy was relatively positive, as compared to other European countries. The mild influence of the crises on the Polish economy, in comparison with other Central and Eastern European countries, is related to the following developments (22,25): lack of problems in the banking sector, weakening of the PLN, relatively flexible labor market, significant inflow of the EU funds. 11
As a result of the crisis the system of financing SME’s collapsed, on top of that, companies had to struggle with a serious deterioration of market conditions. Whereas currently they need to battle the consequences of the crisis, namely, inter alia: lower purchasing power of money, restructuring, decreased ability of innovating and reduced financial outlays on R&D. A limited access to financial sources, which also results from the agreements made in Basel (Basel III), constitutes a major obstacle for SME’s to emerge from the crisis (21). These arrangements – inter alia, a decision on tightening credit money distribution – caused the implementation of stricter procedures of granting credits by banks. The problem of financing SME’s is in the focus of attention of both organizations associated with the EU, OECD, as well as those functioning in Poland. Those organizations are also considering whom an investment risk ought to be imposed on.
Despite the fact that interest rates fell in relation to last year, banks demand a larger number of documents ascertaining a borrower’s credibility, a higher borrower’s own contribution and a higher collateral, and not all the companies are able to fulfill those new conditions. Consequently, both banks and entrepreneurs lose customers and profits, because financial institutions could provide credits, if it were not for Basel III. SME’s in Poland utilize external sources of financing investments only to a limited degree. They mostly finance investments from own sources (52% of companies). When defining reasons for this state of affairs, 11% of entrepreneurs from that sector point out to their fears of high demands posed by financial institutions, 9% mention complicated and time-consuming procedures, while another 7% - high costs of obtaining capital. The structure of the sources of SME’s financing is undergoing certain dynamics. To compare, in 2009 (similarly to previous year) two thirds of SME’s investment outlays were financed with own funds (64.8%), nearly one fifth was financed with national credits and loans (18.5%), and 4.6% from foreign ones (16).
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Diagram. Sources of Financing in Poland - Small Enterprises own capital 42
94
credit lines in PLN
45
family loans
7
48
54
leasing
11
62
35
11
not using and not going to use not using, but is going to use
27
using personal credit lines
68
EU funds for SMEs
72 0
20
8
24
10 94
40
60
80
100 120
Source: based on data derived from Centrum Badań Marketingowych INDICATOR, Finansowanie przedsiębiorców przez banki w 2010 i 2011r. (Report 2011) Small enterprises chiefly finance their operations with own funds (94%), a PLN credit is used to a smaller degree (48%) as are family loans (35%). The situation is similar in case of medium enterprises, where own sources remain the main source of financing operations (87%), along with PLN credit (63%). Leasing constitutes the next most popular source of financing (40%).
Diagram. Sources of Financing in Poland - Medium Enterprises credit lines in foreign currencies
76
6 17
family loans
72
7 20
EU funds for SMEs
63
leasing
10
48
12
26
not using and not going to use not using, but is going to use
40
using credit lines in PLN own capital
32
4
102 0
63 87
20
40
60
80
100 120
Source: based on data derived from Centrum Badań Marketingowych INDICATOR, Finansowanie przedsiębiorców przez banki w 2010 i 2011r. (Report 2011)
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If companies decide to make use of external financing of their development, they consider leasing and bank loans to be the most easily accessible sources. With regard to bank loans, 49% of enterprises express such an opinion (14,16).
As the diagram demonstrates, the use of the EU funds constitutes a relatively small share as one of the methods of financing business activity (development). In case of small enterprises, 7,7% of the population selects this form of financing, whereas nearly 22% of medium enterprises chose it (5). Diagram. The Use of EU Funds by SMEs in Poland 100%
92.3% 78.3%
80%
Small enterprises
60% 40%
Medium enterprises
21.7% 20%
7.7%
0% Yes
No
Source: based on data derived from Centrum Badań Marketingowych INDICATOR, Finansowanie przedsiębiorców przez banki w 2010 i 2011r. (Report 2011)
Considering the form of financing most frequently used by companies – bank loan – it is worth noting that in 2010, just like in 2009, a decrease in the value of credits to businesses was recorded. Despite banks gradually softening their crediting policy towards enterprises, any increase in crediting activity was limited by a low demand for this form of financing, which resulted from the insecurity of business operations. Consequently, the value of credits for SME’s fell in 2010 by 1,2% in comparison to a drop of 3,3% in 2009 (in 2010 the value of credits in this category decreased by twice less than in the previous year). The value of credits in the banking sector at the end of 2010 amounted to 248,9 m PLN, i.e. 15,4% GDP (vis-à-vis 16,5% GDP at the end of 2009) (16,17).
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On the one hand, banks have implemented stricter crediting procedures, while on the other hand SME’s want to make up for the losses incurred in the previous lean years. In spite of the obstacles described here, the Polish sector of SME’s is slowly being restored. Nearly three quarters of small companies recorded a profit in 2010 – it is a better balance than the one recorded in 2009. Every sixth company experienced payment backlog. In 2011 nearly a half of small enterprises expect to have generated a profit at the same level as in 2010. The fact that one third of the companies anticipate a decrease of their profits this year instills less optimism.
In the first quarter of 2011 a large drop was observed in the use of loans offered by banks, however, forecasts for the next half of the year are auspicious (23). Own funds continue to be a dominant form of financing. Loans denominated in the zloty (PLN), family loans, leasing schemes and personal credit lines are popular as well. Currently nearly two fifths of small enterprises take advantage of an overdraft in a vista (current) account or a debit balance, while nearly one sixth makes use of operating credits.
Banks constitute the most important source of external financing for Polish entrepreneurs. No external source of financing exists in Poland - also a public one - that would offer them larger support. However, there is a series of threats which may limit that stream.
A choice of a bank by small entrepreneurs depends chiefly on: recognition of individual needs and preferences of a client, speed and form of settlements, service quality and flexibility, offer range as well as amounts of commission and charges.
The facts that have the greatest impact on the selection of a bank by companies include: functionality of electronic banking system, quality and competence of a bank’s personnel, service quality and flexibility, as well as the quality and availably of a credit offer.
Two fifths of small enterprises keep free resources in an account instead of depositing them; an identical percentage of companies do not possess any free resources. Whereas over one quarter of small enterprises deposits their free financial resources, which 15
constitutes a significant fall in relation to the last year’s figures. This year the most popular forms of allocating free financial resources are: medium-term bank deposits denominated in PLN (1 to 6 months), as well as short-term bank deposits denominated in PLN (up to 30 days) (16). Financial surpluses are allocated in a majority of cases at the company’s main bank, but a quarter of the companies also allocate their free cash at other financial institutions. More than two fifths of those surveyed admitted that at their companies free cash is kept in a current account, whereas nearly one third of those surveyed claim that a company has no free financial resources at all.
The most popular channel of communication and settlements with banks is the Internet, including home banking facility, which enables using a computer system for direct banking transactions.
Credit Policy Towards SMEs – Current and Future Perspective
All the indications are that the policy adopted by banks vis-à-vis SME’s in 2012 will aim towards tightening crediting conditions and raising credit margin. No significant changes in demand for credit have recently been observed, however an upsurge of demand for short-term loans is anticipated. In the 4th quarter of 2011 banks introduced stricter credit policy towards SME’s. Approximately 31% of banks gave such a reply with respect to short-term loans, and about 37% with respect to long-term loans. Banks described the policy of tightening as slight. In case of short-term loans granted to SME’s, banks were expecting a lower scale of tightening crediting conditions (18). For the first time since the 1st quarter of 2010 banks have increased margins on loans granted to enterprises (13). At the same time approximately 24% banks declared a rise of margins for high risk loans. Stricter conditions were also introduced with regard to a maximum loan amount as well as a
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maximum crediting period. The remaining credit conditions for enterprises have not undergone any significant changes.
A majority of banks justified the tightening of credit policy with an increased risk related to a forecasted economic situation, while about 18% of them defined the impact of that factor as having been significant. A percentage of banks pointing to their current or forecasted capital situation as the reason for the tightening of crediting policy vis-à-vis enterprises has grown as well. Banks additionally mentioned an increase of the risk related to the standing of the largest borrowers and a deterioration of the quality of their portfolio of loans for entrepreneurs.
A small number of banks which softened their credit policy justified that step with an increased demand for loans for companies. The banks which recorded an upsurge in the demand for loans explained it with a higher demand for financing of fixed assets and investments by businesses. 34% of banks gave such a response, while at the same time defining the impact of that factor as insignificant. Banks recognized the tightening of crediting conditions as the only factor reducing the demand for loans. According to the banks surveyed, the remaining factors did not seriously affect changes in the demand for loans among entrepreneurs. The opinion the banks presented demonstrates that during the 1st quarter of 2012 all categories of loans for enterprises will be subject to stricter crediting policy. The largest percentage of banks anticipates such a change in the SMEs segment, both for short-term and long-term loans. Banks expect a demand for short-term loans to grow in the 1st quarter of 2012 (20). CONCLUSIONS Poland shows tremendous dynamics in small business development. 23 years following the system transformation demonstrated that the Polish are a highly entrepreneurial nation. Companies currently operating in Poland provide employment for over 6,5 m people. As many as 7 out of 10 of persons are employed in the SME’s sector. Poland is 17
no different from the rest of Europe in respect of entrepreneurship, and with regard to the number of active enterprises it ranks the 6th in the EU. The activity of SME’s plays a fundamental role in Poland’s economic development. Over 1,6 m entities of the SME sector in Poland constitute a dominant force in the Polish economy and a source of growth, innovation, employment and social integration. The smallest entities, i.e. micro-enterprises – usually have a limited scope of operations and small impact on the business environment, however, their sheer number means that the sector plays a significant role in shaping the economy. In Poland, as in the entire EU, they generate approximately 1/5 of the added value of enterprises, while at the same time constituting over 9 in 10 of all enterprises (96%), providing employment to 40% of workers and to 20% of those employed in enterprises.
The characteristic feature of the Polish SME sector is a relatively low growth rate in comparison to the EU states. Polish micro-enterprises are smaller than their foreign partners, they employ fewer workers, obtain lower turnover and balance value. They are growing quite quickly in comparison to the EU states, yet taking into account considerable delays, their growth rate could be quicker and more noticeable.
SMEs depend critically on external sources of finance. Most of enterprises in Poland currently use their savings as the main source of financing their investment. Among the other, external sources, there are bank loans and leasing. SMEs plan their future investments very carefully.
Conducting a business activity in Poland is difficult. Entrepreneurs encounter a series of administrative barriers, struggling with bureaucracy and complicated, frequently amended tax regulations, which makes running a business activity unpredictable to a certain degree. Furthermore, the macroeconomic situation in the EU, fear of an economic slowdown and PLN exchange rate fluctuations prevent the companies from steadily making plans for business development and for new innovations. Apart from the uncertainty as to the development of the macroeconomic situation globally as well as the 18
barriers in conducting business activity, entrepreneurs also encounter limitations in acquiring external sources of investment financing. Those include, inter alia, complicated procedures of obtaining funds, fear of high costs of financing and insufficient awareness on the available possibilities of financing business activity development.
The condition of Polish SMEs in the subsequent months will largely depend on how the macroeconomic situation in Europe unfolds. The debt crisis of the euro zone nations makes fear of another economic slowdown even stronger. Although Poland is not part of the euro zone, a recession in other countries of Europe may have an adverse impact on the Polish economy. Nevertheless, forecasts remain optimistic.
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