Bringing the SME financing gapStrengthening the connections between the demand and supply of capital
The financial crisis has made it more difficult for SMEs1 to finance themselves through the traditional bank lending channel. Professor Peter Roosenboom lends his expertise to solve this problem in a structural way. His findings form the cornerstone of advice for the Dutch government on SME financing and have led to various changes in policies.
“Before the financial crisis, the default option for entrepreneurs was to borrow money from their local banks… As the loans become too expensive, SMEs tend to put their investment plans on hold until better economic times. This is detrimental to the economic growth and innovation… The financial landscape has changed dramatically and enterprises would need to broaden their horizon for financing and use new tools like crowdfunding and microfinance… I would like to help companies to explore the new world of finance.”
— Professor Peter Roosenboom.
It might be surprising to realise that 99.8% of companies in the Netherlands are SMEs. They contribute about two thirds to the Dutch GDP and create 85% of total employment. SMEs are the most vibrant engine for economic growth, as they provide the basic goods and services needed, both at home and abroad. Compared to large corporations, they are much more vulnerable to funding shortages due to the lack of capital buffers and resources, and the lack of internal diversification. SMEs rely heavily on bank financing in the form of short- and longterm loans to provide working capital and to finance future growth. But their loan applications are often rejected by their banks, leaving them more dependent on their own means or even causing financial distress. This financing difficulty reached its peak during the financial crisis, as banks started to apply more restrictive credit requirements in order to comply with the Basel III regulations.2 Professor Peter Roosenboom, head of the finance department at Rotterdam School of Management, member of ERIM, has centred his research on entrepreneurial finance for many
years. His work ranges from studying the role of government intervention on distressed banks in order to stimulate lending to the real economy3 to the role of private equity in management
buy-outs.4 His current research agenda also involves new entrepreneurial financing channels such as crowdfunding.5
He engages frequently with policy makers and regulators to help design future-proof policies to stimulate SME finance in a post-crisis environment. As a leading expert on entrepreneurial finance in the Netherlands, he was invited to the Dutch parliamentary hearings on private equity. In 2011 and 2014, the Ministry of Economic Affairs invited him to participate in a series of research on SME financing in the Netherlands. The findings and recommendations from Roosenboom and Duffhues (2011) on current developments and the future of entrepreneurial finance in the Netherlands after the financial crisis served as the cornerstone for the final report of the Committee De Swaan to the Dutch government on SME financing and led to various changes in policies. One key finding was that entrepreneurs are not well informed about their financing tools and thereby rely heavily on their local banks. In response to this advice, training programmes for accountants and tax advisers were initiated to provide entrepreneurs with updated information on financing alternatives. Other simulative policies following the Committee De Swaan include the establishment of a fund on the Euronext Amsterdam for SMEs6 and the reduction of the registration burden for entrepreneurs as of 2012.7 In 2014, Professor Roosenboom wrote a comprehensive review about the recent developments and future trends in the Dutch SME sector,8 external financing channels available to the Dutch SMEs9 and the Dutch government’s stimulus policies to support SME financing.10 This report became Part 4 of the final report, “Het MKB in Beeld,” commissioned by the Dutch Ministry of Economic Affairs.
Based on his academic research, Peter Roosenboom also lends his expertise to solve entrepreneurial financing problems in a structural way. He provides advice to enterprises, regulators, and industry organizations the independent governing body of PEREP Analytics – a data collection platform of the European Venture Capital, Private Equity Association (EVCA), and the advisory boards of several start-up firms.
Alongside his commitment to improving entrepreneurs’ financing situation in the post-crisis era, Professor Roosenboom has a long-term mission to create a better entrepreneurial environment through education. He is actively engaged in the RSM open lecture series to provide up-to-date information on financing sources and ways for entrepreneurs to access them. His bachelor and master courses on Entrepreneurial Finance and Private Equity have been some of the most popular courses at RSM over the last 10 years and have inspired hundreds of students. A large number of RSM students start their own companies, and some of these companies explicitly focus on facilitating entrepreneurial finance. Examples include Equidam, which facilitates the evaluation of start-up companies; and Symbid, which provides a reliable platform for crowdfunding and Leapfunder, a platform to help start-up companies attract angel investments (especially tailored to the high tech sector). Some other students have become financiers and regulators who apply the knowledge and ethics they learned in his class to create a better and more prosperous economy.
1 SMEs are defined as companies with maximum 250 employees, annual revenue less than €50 million and the total balance sheet size of less than €43 million.
2 The Basel III regulation is intended to strengthen bank capital requirements and was developed in response to the deficiencies in financial regulation revealed by the 2007-2008 financial crises.
3 Norden, L., Roosenboom, P.G.J. and Wang, T. (2013). The impact of government intervention in banks on corporate borrowers’ stock returns. Journal of Financial and Quantitative Analysis, 48 (5), 1635-1662.
4 Fidrmuc, J.P., Palandri, A., Roosenboom, P.G.J. and van Dijk, D. (2013). Why do managers seek private equity backing in public-to-private transactions? Review of Finance, 17 (3), 1099-1139.
5 Roosenboom, P.G.J. (2014). Het externe financieringsaanbod voor het Nederlandse MKB. In Het MKB in Beeld (pp. 33-62).
6 “Hollands Glorie”6 Jul 2011, De Telegraaf http://www.telegraaf.nl/dft/goeroes/ceesvermaas/20061896/__Hollands_Glorie__.html
7 “Heffingen KVK volgend jaar 10 procent omlaag”29 Jun 2011, De Telegraaf http://www.telegraaf.nl/dft/nieuws_dft/20173693/__Heffingen_KvK_volgend_jaar_10_procent_omlaag__.html
8 Roosenboom, P.G.J. (2014). Het Nederlandse MKB: De stand van zaken. Het MKB in Beeld (pp. 17-32).
9 Roosenboom, P.G.J. (2014). Het externe financieringsaanbod voor het Nederlandse MKB. In Het MKB in Beeld (pp. 33-62).
10 Roosenboom, P.G.J. (2014). Beleidsmatige ondersteuning van het MKB. In Het MKB in Beeld (pp. 63-69).