The finance ministry has promised aid for small businesses in a bid to make inroads into the appalling level of unemployment in this country. It is of course small business which keeps the entire economy afloat, last year 1.6m companies in this country, some 98 percent of all businesses, employed less than six people. A quick calculation shows that if each of these companies employed one more person then unemployment would be halved. Perhaps that is not very realistic. It is even less realistic if money for future development cannot be raised. Unfortunately the only way to raise money as far as lending institutions are concerned is if you are a dead cert and small businesses do not fall into this category.
There are three ways in which a business can theoretically raise cash. Loan from a bank, loan from another financial institution or find a backer such as a venture capital fund which will forward funds in return for a stake in the business. In practice only large companies have access to this cash.
Small business has to make do with method number four. Loans from family and friends.
Strangely enough it is hardest of all to raise funds for a company that has already started trading. Mr Kowalski has a small business. He started it up with aid from his family and maybe even from those organisations which back small businesses. The number of employees is now in double figures and has had an idea for a new product. He needs cash to get it started but the amount falls into that trap of being between several hundred PLN and PLN4m.
Too much for a small business loan, too little for a venture capital or private equity fund.
Iwona Drabot of Enterprise Investors says that her company would not place less than USD3m in a project in theory although investments of USD1m - USD1.5m have taken place. Less than that is out of the question. The scale of the investment is very valid as the project must pay in terms of time and man hours put into it. The administrative cost of many small projects is much greater than that of larger investments. Furthermore an exit strategy needs to be considered and the company needs to have a strong market position before Enterprise Investors can pull out.
The smallest investment may well be in the IT field although in the light of events in that sector over the past year and a half means that there are fewer prepared to risk money here. The MCI fund planned internet incubators for example but as the idea did not work in Western Europe it was abandoned.
Tomasz Czechowicz, MD of MCI, believes that the most profitably investments are in the restructuring of existing companies.