SMEs and entrepreneurs are at an important crossroads. In recent years they have faced a series of challenges, from pandemic shutdowns to high inflation and record rises in interest rates. While some of these pressures are easing, financing conditions remain tight, and there is growing uncertainty about the future business and financing environment. SMEs, and indeed governments, now face a stark choice: pause investments indefinitely at the peril of innovation and competitiveness – or find a new path to tap into available investment capital.
Finance in trouble
Central banks responded quickly and decisively to rein in inflation since 2022. Policy rates spiked from below 1% in 2022 to reach 4.5% in the Euro area, 5% in the UK and more than 5% in the US in 2023. SMEs were hit hard. Our data show that in 2023 alone, bank lending to SMEs fell by 9%, a drop not seen since the Great Financial Crisis, while SME interest rates peaked at 6%.
Evidence shows that banks are increasingly concerned with the capacity of SME borrowers to repay their loans, with bankruptcies rising by 11% in 2023. This cautious approach, along with higher costs and stricter collateral requirements, runs the risk of leaving many viable firms unable to access the finance needed to run their businesses.
Rising rates and falling lending to SMEs
Other forms of finance have not picked up the slack. Asset-based finance has contracted, and venture capital investments fell sharply in 2023 (by 34%), recovering only slightly in 2024.
These developments have impacted SMEs’ ability and willingness to make crucial investments in sustainability, digitalisation and skills. The latest EU Craft and SME Barometer shows that SME investment expectations are continuing to decline, and SME finance in countries like Portugal and Spain is already shifting towards smaller-scale, short-term financing. This impacts SMEs’ resilience and competitiveness with repercussions for us all.
Unlocking available finance
So, where do we go from here? There is a path forward to unlock new sources of finance and enable continued investments by smaller firms. But the right conditions need to be in place.
Take venture capital, for example. Investment volumes have expanded eight-fold over the last 15 years, notwithstanding recent market turbulence. Direct public VC investment commitments have increased, often channelled through public development banks, along with indirect investments in collaboration with private equity funds. And efforts are underway to crowd in institutional investors as well. New funds are targeting specific segments of SMEs, such as women-owned businesses, or firms operating in the green-tech or deep-tech sectors. Governments have also been working to boost business awareness and skills to help SMEs bring more promising projects to investors – an approach that is key to the UK’s Clean Growth Fund, France’s FrenchTech 2030 and the European Innovation Council Accelerator. Yet despite these efforts, VC finance only represents only a small share of SME finance at the reach of only a few. Greater access for innovative SMEs is possible – and needed.
SMEs could also tap into growing investor appetite for sustainable finance to finance the investments needed for the green transition. Global sustainable debt reached USD 800 billion in the first half of 2024 alone; yet SMEs are often unaware – or unable – to access this finance. A key barrier is sustainability reporting. Efforts are underway to streamline requirements and foster convergence across SME reporting frameworks. The OECD Platform on Financing SMEs for Sustainability is contributing to this by developing guidance for SME sustainability reporting to financial institutions.
Financial technologies offer a third option to strengthen flows of finance to SMEs. Fintech tools can lower transaction costs by providing faster, more accurate assessments of credit risk for smaller firms, enabling them to more easily find the right solution. They have proven particularly effective in mobilising alternative data for credit scoring, for example. The emergence of AI tools can also help make the loan application process more intuitive and better adapted to SMEs’ financial and digital skills, provided that due attention is paid to avoiding bias, ensuring data privacy and security and consumer protection.
To seize these opportunities, SMEs need not only access, but knowledge and trust in these solutions. There are a range of AI-powered initiatives to boost financial and digital skills. For example, in Malaysia, the recently launched National AI office (NAIO) is using AI solutions to bridge SME financial and digital skill gaps. In Singapore, the SME Go Digital programme uses a GenAI navigator to provide recommendations based on SMEs’ specific needs, including financial needs.
If finance flows, investments will follow
Despite current roadblocks, SMEs can rise to the challenge and continue to drive innovation and sustainable growth. Working together, governments, finance and business actors can get finance flowing once again, unlocking SME investments and forging the path to resilience and sustainability.
| Find out more OECD (2025), Financing SMEs and Entrepreneurs Scoreboard: 2025 Highlights, https://doi.org/10.1787/64c9063c-en. OECD (2025), Fostering convergence in SME sustainability reporting, https://doi.org/10.1787/ffbf16fb-en. |
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). She leads the OECD Platform on Financing SMEs for Sustainability. 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.
Maria Camila Jimenez is a junior policy analyst specializing in SME and entrepreneurship finance policy. She has contributed to the preparation and finalisation of several editions of the Financing SMEs and Entrepreneurs: An OECD Scoreboard. She has also co-authored and contributed to other OECD reports on topics related to SME finance, including government support for Venture Capital Funds, the SME Policy Response to COVID-19, and Sustainable Finance for SMEs. Prior to joining the OECD, she worked in the export-promoting agency of Colombia in Mexico and in an incubator and accelerator of female entrepreneurship. Maria Camila holds a master’s degree in public administration from the London School of Economics and Political Science.