By Lamia Kamal-Chaoui, Director, OECD Centre for Entrepreneurship, SMEs, Regions and Cities
In an increasingly uncertain world, small and medium-sized enterprises (SMEs) need more flexible financing options. As inflationary pressures, geopolitical shocks and renewed interest-rate uncertainty reshape business conditions, governments have rightly continued to respond to emerging financing needs by bolstering traditional bank finance through guarantees and direct lending.
Today’s volatile business environment calls for a broader range of instruments to ensure SMEs can access finance that is fast, adaptable and diverse enough to boost their investments and resilience.
However, they also recognise that today’s volatile business environment calls for a broader range of instruments to ensure SMEs can access finance that is fast, adaptable and diverse enough to boost their investments and resilience.
Why flexibility matters more now
SMEs come in different shapes and sizes. A start-up built on intellectual property will not need the same form of finance as a manufacturing supplier managing receivables or a small service business refurbishing premises. A system that relies too heavily on a single instrument will struggle to meet the needs of all of them.
Evidence from the Organisation for Economic Co-operation and Development’s (OECD’s) 2026 Financing SMEs and Entrepreneurs Scoreboard points to this as a structural, not just a cyclical, problem. But successive shocks, from the pandemic to energy-price spikes, supply-chain disruptions and still-elevated inflation rates, have exposed the limits of relying too heavily on bank lending.
Financing conditions for SMEs remained tight after the pandemic, despite some easing in rates, due to ongoing uncertainty. That has weighed on investment.
A 2025 OECD analysis suggests that aggregate real-investment volumes remained around 22 percent below their pre-Global Financial Crisis (GFC) trend in advanced economies and roughly 7 percent below their pre-COVID trend.
In this environment, flexibility matters more. When revenues fluctuate, orders slow, input prices jump, or customers pay late, firms often need working capital that moves with the rhythm of the business to stay afloat. They may need receivables finance rather than fixed collateral-based borrowing, a revolving line rather than a lump-sum loan, patient capital or quasi-equity rather than debt with fixed repayment obligations.
A broader mix of options
One part of that broader mix is venture capital (VC). It is not for every SME, but it can unlock the potential of innovative firms for which debt is not the right solution to finance growth. Global VC flows have almost tripled since 2015, reaching US$512.6 billion in 2025. But this growth comes with important limitations.
Recent venture-capital deals have been heavily concentrated in a small number of sectors, especially artificial intelligence (AI) and machine learning (ML), and mostly in North America and Europe. They are also unevenly distributed across entrepreneurs and regions, often favouring founders in the largest urban ecosystems. While growth in venture-capital flows is welcome, access still needs to broaden across different countries, regions, sectors and types of entrepreneurs.
Financial technology (fintech) is a different kind of opportunity. Its promise lies less in replacing bank lending outright than in making finance more accessible and adaptable. Fintech firms are expanding quickly. In 2025, more than 30,000 fintech firms were recorded worldwide, marking a more than sevenfold increase since 2008. In 2025, fintech revenues grew by 21 percent from the previous year to US$650 billion.
That matters because fintech is often better placed to address precisely the frictions that make SME finance difficult: small transaction sizes, thin files, irregular revenues, limited collateral and costly manual assessment. By using alternative data, automated processes and digital channels, fintech can open up finance to more small firms and tailor products more closely to their needs.
For a small-business owner, that may mean the difference between waiting weeks for the approval of a conventional loan and accessing revolving credit within the same digital environment used to invoice customers, order inputs or manage cash flow. The appeal is not only speed; it is also fit. A financing product that moves with transactions, receivables or platform activity may simply make more sense for a small business than one built around long forms, fixed collateral and a one-off credit decision.
Evidence also suggests that fintech credit may be less affected than traditional bank credit when monetary policy tightens and can help reach parts of the market that conventional lenders are less willing to serve.
The OECD’s work also links the digital transformation of finance to better credit conditions for SMEs, including narrower lending spreads relative to large firms, lower collateral requirements and more lending. Receivables finance, factoring and other forms of asset-based lending are also critical because they are better matched to the resources many SMEs can actually mobilise. Similarly, intangible-based finance widens the collateral base, helping innovative SMEs to access financing.
Small firms may lack large, fixed assets, but they often have invoices, orders, inventory and business relationships that can support financing if legal and digital systems are strong enough to recognise them.
Policy pathways
Traditional support instruments still have an important role. Germany’s ERP Promotional Loan for start-ups and succession, for example, offers 100-percent guarantees for start-ups and business successors through KfW (Kreditanstalt für Wiederaufbau) and the German guarantee banks. But in a more uncertain environment, such tools need to be complemented by a broader financing ecosystem.
The OECD’s Recommendation of the Council on SME Financing, a unique international standard, provides a broad framework for diversifying sources of finance.
Yet alternative financing models will only thrive if policy evolves with them. The OECD’s Recommendation of the Council on SME Financing, a unique international standard, provides a broad framework for diversifying sources of finance. It calls for government action to widen access to patient capital, make digital finance trustworthy and build the infrastructure that allows more firms to turn receivables, transactions and other business resources into usable collateral or credit signals.
The first task is to widen access to venture capital. To address regional concentration and improve access for underrepresented entrepreneurs, governments, including Canada, Colombia, Denmark, Germany, Sweden and the United Kingdom, are increasingly using public development banks to participate indirectly through specialised fund-of-funds (FoF) structures that target underrepresented entrepreneurs and regions. They are also trying to mobilise a wider investor base, including institutional investors and family offices, and to steer capital, including patient capital, towards sectors in which market finance remains thin.
The second task is to make digital finance trustworthy and usable. Used well, AI can improve credit assessment, lower operating costs and help identify viable borrowers whose strengths are not visible through traditional credit models. But used badly, it can reproduce bias, obscure decision-making and create new vulnerabilities. The right policy response is, therefore, not simply to promote AI adoption, but also to ensure that automated tools remain explainable, accountable and subject to effective oversight.
That need for trust and accountability is already visible in regulatory practice. Under the European Union’s Artificial Intelligence Act (AI Act), AI-based creditworthiness assessments by banks are treated as high-risk use cases. Germany’s MaRisk (minimum requirements for risk management) framework calibrates requirements to model complexity and risk, while Spain has favoured sandbox-based testing in a controlled environment rather than a rush to blanket new rules.
More broadly, recent OECD work suggests a measured regulatory response: Of the 49 jurisdictions surveyed, 30 indicated they had no plans for legislative expansion on AI-in-finance risks. The direction of travel is less about writing entirely new rulebooks than about adapting existing frameworks if and where necessary.
The third task is to build the information and legal infrastructure that makes more flexible finance workable at scale. Open banking and open finance matter because they make it easier for SMEs to share verified transaction and other financial data with a wider range of providers, supporting more tailored products and more contestable markets. Simply put, with the appropriate safeguards in place, they widen the field of institutions that can understand and serve smaller firms.
Several countries, including Georgia, France and Ukraine, are introducing regulatory reforms to modernise the infrastructure for receivables finance through digital-factoring systems and invoice registries, allowing parties to verify receivables, reduce the risk of double financing and assess credit risk more accurately. France’s framework for electronic transferable records points in that direction. These reforms matter because many SMEs do not lack economic value; they lack financial systems able to recognise it.
But governments can do more than regulate these new channels. They can use them too. Based on a global survey of fintech firms, 20 percent reported participating as a delivery or implementation partner in a government-based COVID-19 relief scheme. For example, the United States allowed eligible nonbank fintech lenders to disburse Small Business Administration (SBA)-guaranteed Paycheck Protection Program (PPP) loans to widen options and speed up delivery to small businesses, while in the United Kingdom, fintech and marketplace lenders were accredited under the British Business Bank’s Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS). These were crisis measures, but the use of such channels can become a more permanent feature of public support. For example, in the US, the SBA has allowed non-depository lenders to participate in its 7(a) Guarantee Program. In the UK, the successor to the Recovery Loan Scheme (RLS), the Growth Guarantee Scheme (GGS), includes fintech lenders in its current accredited lender list.
A more adaptable SME finance system
Governments must continue to support traditional bank finance. However, the case for complementary action on alternative finance has become even stronger in an increasingly uncertain world.
A broader SME financing mix of venture capital, fintech-driven finance, factoring, leasing and other alternative instruments is imperative. Without it, too many firms will remain tied to financing channels that are least flexible when uncertainty is greatest and when adaptability matters most.
Lamia Kamal-Chaoui is Director of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities and a member of the OECD Executive Leadership team. She leads the OECD’s work on SME finance, entrepreneurship, regional and urban development, and has spearheaded key OECD initiatives on SME financing, inclusive entrepreneurship, and the green and digital transitions for small businesses.