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ESBG responds to EU Commission consultation on SME definition review

ESBG responds to EU Commission consultation on SME definition review

​​​​​European Savings and Retail Banking Group, ​Rue Marie-Thérèse, 11 - B-1000 Brussels 

ESBG Transparency Register ID: 8765978796-80 

May 2018​

​>> .pdf version

The European Commission (EC) is currently preparing an evaluation and possible revision of some aspects of the EU micro-, small- and medium-sized enterprises (SME) definition (Recommendation 2003/361/EC of 6 May 2003). As part of this process, the EC has launched a consultation process to determine whether and how the definition of SMEs needs to be changed so that small European companies can continue to benefit from targeted measures.

The European Retail and Savings Banking Group (ESBG) welcomes the possibility to comment on the revision of the SME definition. The application of the SME definition has a high practical relevance for retail and savings banks in Europe due to the strong existing links with SMEs and the inherent capacities of retail and savings banks to provide finance to SMEs through loans and other types of financial instruments.

General Comments

​The revision of the SME definition should serve three objectives:

1. Facilitating application: Due to its high complexity - especially when considering the interdependencies of companies - the application of the SME definition is currently resource-incentive which causes irritations and is time consuming. The audit process repeatedly holds the potential for errors, which can have negative consequences for current and future financing options for companies. The revision should therefore be used for simplification and harmonization with other EU regulations, in particular with the so called de minimis Regulation (Regulation EU 1407/2013).

2. Establishing legal certainty: Increasing legal certainty is urgently needed. Two rulings by the European Court of Justice delivered in September 2016 provided ground for legal uncertainty as to the extent to which the interdependence of companies is to be taken into account in determining SME status (Chimica case (T-675/13) and Crosfield case (T-587/14).

3. Adapting to economic developments: The current thresholds for SME criteria were set in 2003. An average inflation of around 30 percent over the last 15 years in the EU and productivity growth over the same period provide clear rationale for intervention and for a revision of the definition. The possible need to adjust the thresholds was already investigated in 2012 in an evaluation of the SME definition on behalf of the Commission (ENTR/172/PP/2012/FC – LOT 4). Keeping the thresholds at 2003 levels would mean that, regardless of their real growth, increasingly more companies would fall out of SME categorisation over time.


In order to achieve these goals, ESBG suggests the following adjustments:

The scope of eligibility of criteria

The current SME definition is based on three criteria; namely staff headcount, financial parameters (including revenue and balance sheet total) and independence/ownership. In our view, these criteria are well defined and should not be supplemented or replaced by any other criteria. The existing distinction between micro, small and medium-sized enterprises is also appropriate and should be maintained as it offers the possibility for targeted and graduated funding.

However, ESBG believes that the thresholds for the categories should be raised and ownership assessment simplified and harmonised (see below).

The weighting of the criteria should also be reviewed. At present, the criterion “number of employees" cannot be compensated by another criterion and is therefore the most important of the three criteria. Although the criterion “number of employees" is easy to apply and does not leave any room for interpretation, it fails to reflect the differences such as the labour intensity of the various sectors (e.g. services). In addition, it does not take into account the diversity in labour productivity across the EU countries. In order not to have to introduce new criteria, it should therefore be examined whether the “number of employees" criterion must continue to be mandatory or, as the two financial criteria, whether it can be subject to an “or" rule. In this scenario, any two of the three criteria (number of employees, revenue and balance sheet thresholds) must be fulfilled in order to obtain the SME status.

​“Number of employees" criterion

The threshold value of the criterion “number of employees" should be increased and harmonised with other EU regulations. Different criteria for SMEs in different EU funding programmes increase the audit burden and counteract the European Union's efforts to promote SMEs and eliminate competitive disadvantages.

We are therefore in favour of adapting the SME definition to the following delimitations:

  • Micro-enterprises: 0-19 employees

  • Small businesses: 20-99 employees

  • Medium-sized companies: 100-499 employees

In addition to the size classes, the procedure for determining the number of employees should also be simplified and standardized. Conversion into annual work units (AWU) induces additional work for many small companies with additional testing requirements.

Financial criteria: “revenue" and “balance sheet total"

The financial thresholds should also be adjusted to economic developments and at least reflect inflation of around average 30 percent in the EU as well as the increase in labour productivity since the introduction of the thresholds in 2003. In order to take future developments into account, we recommend an increase to the following new thresholds (note: the current thresholds are shown in brackets):

​ ​​

Number of employees


Balance sheet total


< 20 (10)

≤ 4 (≤ 2) EUR million

≤ 4 (≤ 2) EUR million

Small businesses

< 100 (50)

≤ 20 (≤ 10) EUR million

≤ 20 (≤ 10) EUR million

Medium-sized companies

< 500 (250)

≤ 75 (≤ 50) EUR million

≤ 75 (≤ 43) EUR million


Criterion ownership/independence

The current SME definition encompasses all (direct and indirect) partners and related companies in order to determine the real economic performance of an SME. However, the regulations are not transparent and cause a great deal of assessment effort and legal uncertainty. In particular, the connection via natural persons who are active in neighbouring markets requires a great deal of interpretation and is therefore non-transparent. It is often very difficult to look at partner companies, especially in the case of larger groups of companies, and this has led to legal uncertainty in interpretation, in particular when the SME does not receive the financial support of the parent company. In addition, different EU regulations currently entail different review processes (e.g. state aid law: de minimis Regulation (EU 1407/2013)) and lead to unnecessary costs for companies. This circumstance is not comprehensible and cannot be explained in practice.

ESBG therefore calls for an adaptation of the SME definition aligned with the much simpler de minimis Regulation (Regulation EU 1407/2013) on the consideration of a “single company". In our view, the abolition of connections via natural persons and the abolition of partner connections could lead to standardisation, simplification and greater legal certainty.

Participation of venture capital companies and business angels

At present, companies in which venture capital companies hold more than 50 percent of equity are not regarded as independent. The same applies to companies in which a business angel holds more than EUR 1,250,000. Consequently, such companies may not be considered SMEs, even if they comply with employee numbers and financial thresholds.

We consider the threshold value for business angels of EUR 1,250,000 to be arbitrary. It should therefore be dropped. The SME status of a company should also be maintained if the share of venture capital companies exceeds 50 per cent of this company, since such companies continue to be allocated to the SME segment in practice and the conditions for borrowing are also comparable with a "normal" SME.

Public companies

Companies in which one or more public bodies or public corporations individually or jointly control more than 25 percent of the capital or voting rights are not considered SMEs according to the current SME definition. This rule discriminates against such (Municipal) companies for no reason. In particular, even companies in which the public sector holds a majority stake generally have no more favourable financing options that would justify a flat-rate classification as non-SMEs. This applies even more so to companies in which the public sector holds a minority stake. Companies with municipal participation should therefore be placed on an equal footing with private companies.

Grace period

The EU definition of SMEs currently grants a two-year “grace period", i.e. companies only lose their status as SMEs if they exceed the thresholds for employee numbers and finances for two consecutive years. The grace period of two years makes sense and should not be changed. In the event of minor fluctuations along the criteria, companies thus retain their SME promotion status and the associated financing options. We do not believe that the grace period should be extended beyond two years. 


About ESBG (European Savings and Retail Banking Group)

ESBG represents the locally focused European banking sector, helping savings and retail banks in 20 European countries strengthen their unique approach that focuses on providing service to local communities and boosting SMEs. An advocate for a proportionate approach to banking rules, ESBG unites at EU level some 1,000 banks, which together employ 780,000 people driven to innovate at 56,000 outlets. ESBG members have total assets of €6.2 trillion, provide €500 billion in SME loans, and serve 150 million Europeans seeking retail banking services. ESBG members are committed to further unleash the promise of sustainable, responsible 21st century banking.


Published by ESBG​. May 2018.

​>> ​.pdf version

SME finance