Innovation in small business, new technologies and their financing - An overview of recent research

Small and medium-sized enterprises (SMEs) innovate and invest in new technologies much more than was thought until recently. Some do so in a radical way, others in an extensive way. They can easily be compared to large enterprises if we exclude SMEs in specific niches, and those which are not in a competitive environment. The perception that SMEs were slow to innovate or use new technologies compared to large enterprises stems from the belief that SMEs were short of resources, and in particular, short of financial resources. Many studies have shown that the financial structure of SMEs is not significantly different from that of large enterprises, except for the importance of short-term financing. Such financing, taking into account the seesaw cost evolution of R&D and technological improvements, might prove problematic for very innovative or high-technology SMEs, particularly in the R&D stage of the innovation development, or in the structural technological change phase, where the level of uncertainty eliminates access to regular financial markers. In this case, state intervention would be appropriate. The state could work in association with SMEs and financial institutions, to adapt programs and to inform SMEs of the range of risk financing possibilities at every stage of the innovation process. Similarily, financial institutions should review the way they participate in the financing of SMEs and revise their risk-appraisal models.