Is financial diversification the key to SME resilience?

Small- and medium-sized enterprises (SMEs) and entrepreneurs were hit extremely hard by the COVID-19 pandemic. Many remain vulnerable to renewed pressures from high prices in energy and raw materials, financial market volatility and disruptions in supply chains and trade. To invest in growth and greening and play a full part in the recovery, we need to enable them to tap into alternative financial instruments.

SMEs on the front lines

SMEs were highly exposed during the pandemic. They were over-represented in the most affected sectors, where they accounted for nearly 75% of jobs. Many had to adapt their businesses quickly to long periods of restrictions, with over 50% of SMEs increasing their use of digital tools during the pandemic. They were also impacted by supply-chain disruptions linked to the pandemic, owing to their limited capacity to find new intermediate suppliers and diversify value chains.

SMEs often have fewer liquidity buffers than larger enterprises and tend to seek external finance to cope with crisis. Most often, this takes the form of credit, through loans, overdrafts and lines of credit. Lending support is also the go-to instrument for governments seeking, as an effective way to respond to the financing needs of SMEs and reach a broad swath of businesses quickly.

Lending as a lifeline

This pattern has played out in times of major crisis, like the global financial crisis and the COVID-19 pandemic. According to new analysis by the OECD in 2020, many government-rescue measures took the form of debt. From a sample of 55 countries, 87% used direct lending, and 62% used debt moratoria for SMEs. Government credit guarantees to back SME loans more than doubled.

Lending worked in tandem with monetary policy – including interest rate cuts and quantitative easing – to keep finance flowing. As a result, the stock of SME loans grew at a rate not seen since the global financial crisis, and the median SME interest rate faced by SMEs declined by 0.4 percentage points – the largest fall since 2009.

The rapid response of governments around the world brought much needed relief to cash-strapped SMEs and certainly saved many viable firms from bankruptcy. At the same time, it has left many of them with higher levels of debt, at a time when they need to make important investments to keep pace with digitalisation, greening and skills. And it leaves them with a thin buffer against new shocks.

The road to greater SME resilience

To enable SMEs to strengthen their resilience, we must expand their access to a range of financing instruments. At a time when many SMEs are highly indebted, alternative finance instruments can be a good solution for highly leveraged firms to invest without adding to their debt burden.

The use of different mechanisms to monitor funding, cash flow and assets enables alternative providers to manage the risks and market uncertainty that often hold back finance for SMEs. These instruments also serve to finance the young and innovative SMEs and start-ups needed to help drive the recovery.

Financial diversification is now an imperative, and is within reach. Efforts in this area prior to the pandemic had started to pay off, with SME uptake of asset-backed finance, venture capital and online alternative finance rising across the board in the run-up to the crisis. Yet growth in the use of these instruments by SMEs, in particular alternative forms of debt, suffered during the pandemic. And an assessment of national recovery packages shows that government use of alternative financing instruments and sources to channel SME-specific support remains limited.

Creating the right conditions

To boost SME resilience, governments need to turn their attention once again to creating the conditions for SMEs to tap into a broader range of financing sources. This means ensuring that government support is channeled through a broader range of instruments and providers, including Fintechs. But it also calls for stepping up efforts to create greater awareness and investor-readiness among SMEs and entrepreneurs to access the types of finance most suited to their needs and ambitions, including equity, quasi-equity, supply chain and trade finance and sustainable finance.

With a more balanced funding mix, SMEs will be in a more solid financial position and less vulnerable to the volatile conditions that increasingly characterise today’s environment. They will be able to continue to provide employment and serve their local communities. They will also be better equipped to invest for the future and benefit from the twin transitions of digitalisation and greening. As governments look to the future, they must ensure finance continues to flow to build greater SME resilience.


The OECD is continuing to provide support to governments across the world through its analysis and collaborative initiatives, such as the Digital for SMEs Global Initiative and the Platform on Financing SMEs for Sustainability. This year, the OECD will update the G20/OECD High-Level Principles on SME Financing to provide further guidance to governments on these important issues.

Miriam Koreen
Senior Counsellor on SMEs and Head of the SME and Entrepreneurship Finance Unit at | Website

Ms. Miriam Koreen is the Senior Counsellor on SMEs and Head of the SME and Entrepreneurship Finance Unit at the Centre for Entrepreneurship, SMEs, Regions and Cities of the Organisation for Economic Co‑operation and Development (OECD). From 2011 to 2018, she was Deputy Director of the Centre and Head of the SME and Entrepreneurship Division. Ms. Koreen has worked at the OECD since 2000, when she joined the OECD as an analyst on entrepreneurship and SME policies. She has served as Counsellor to the Trade Directorate, Advisor in the Office of the Secretary-General and Senior Project Manager for the OECD Innovation Strategy. She also chaired the OECD Procurement Board from 2011 to 2015. Ms. Koreen holds a M.Sc. in Development Studies from the London School of Economics and Political Science, and a BA in English and Modern Languages from Emory University.