Statrys Payment Platform Ecosystem

The Ultimate Guide to SMEs and their Importance in the Economy

Bertrand Théaud
Published: 29 Jul 2020

contents

    SME stands for small and medium (or mid-size) enterprises. They are defined as businesses that report revenues, assets or employ a certain number of employees that falls within a given limit.

    Each country defines what constitutes an SME differently, as well as what requirements it must satisfy in order to qualify. The criteria vary significantly not only between countries but also sometimes between industries and products within industries.

    Understanding whether or not your company meets the criteria of an SME and which tools are available to support you through your journey as a business will empower your growth and development.

    What is an SME?

    There is no definite way to define a small and medium enterprise, each country has its own definition. For example, in the United States, an SME is permitted to employ up to 1,200 employees whereas, in the EU, companies can hire only up to 250 employees.

    Not only are the characteristics that define an SME different between countries, but so are the abbreviations and appellations commonly used around the world to refer to them. The term is more often used by the European Union, the United Nations (UN), and the World Trade Organization (WTO). Elsewhere, in the US for example, those businesses are called small-to-mid-size-businesses (SMBs).

    Having said this, what is consistent throughout the world is that the term SME is used to tell small and medium-sized businesses apart from large companies. There is a mutual understanding of separating businesses according to size.

    The reason behind this is that SMEs actually account for the majority of business activity in most countries. They are essential for employment, economic growth, innovation, and diversity.

    So much so that they are often offered incentives to help finance them and keep them in business. Defining businesses by their size enables governments to identify where resources and efforts should be pooled to ensure continued prosperous economic growth.

    Small and medium businesses are present in all industries, but generally speaking, some industries are more likely to have more SMEs than others. These include the food & beverage, legal, and medical industries for instance as they typically operate with a small number of employees.

    The importance of SMEs in emerging and developed economies

    As mentioned above, SMEs play a significant role in both developing and developed economies. In 2019, 99.9% of businesses in the United States fell under the SME bracket, accounting for over 47% of total employment, based on a study concurred by the U.S. Small Business Administration.

    The value of SMEs is not just applicable to developed economies. According to a report published by the Organisation for Economic Co-operation and Development (OCED) in 2017, small and medium businesses accounted for about 45% of employment and 33% of GDP in emerging economies across the globe.

    The World Bank recently released a report claiming that by 2030 over 600 million jobs will be required to respond to the growing global population and workforce, which makes small and Business enterprises growth a priority for most governments around the globe.

    This explains why SME funding and financial backing is common practice. Access to finance is a primary constraint for these businesses, as such, governments often offer particular financial enticements, advantageous tax terms as well as loan access, all in favor of keeping them afloat. This form of assistance and the extent to which SMEs get aid is defined by each country respectively.

    How SMEs operate?

    There is no single way to define how small and medium-size enterprises operate, each country identifies them differently:

    1. SMEs in the United States:
      It can be tied by standards for both revenue and the number of employees they have, depending on the industry they are in. Sometimes these standards are further broken down by product within an industry.
      A manufacturing business in rice milling is not permitted to have over 500 employees, whereas a manufacturing business in wet corn milling identifies as a small business as long as it has less than 1,250 employees. And for other forms of farming, the limits are set at a revenue cap rather than an employee count. SME standards are maintained by the U.S. Small Business Administration.
    2. SMEs in Canada:
      It refers to companies with an employee count below 500, as defined by Innovation, Science, and Economic Development Canada (ISED). A small business should have no more than 100 employees, and a micro business is limited to five employees.
    3. SMEs in the EU:
      It can have up to 250 employees on its payroll. If a company has less than 50 employees then it is identified as a small business, and a company with fewer than 10 employees is acknowledged as a micro-business.
    4. SMEs in Hong Kong:
      In Hong Kong SMEs are defined as manufacturing companies that have an employee headcount that does not exceed 100 employees. Non-manufacturing companies qualify as SMEs when they have less than 50 employees on their payroll.

    Can neobanks benefit SMEs?

    Evidently, Small business requires better loan sources and funding to keep growing their businesses. Banks and traditional lending institutions are often averse to loaning money to SMEs because they are considered to be high-risk ventures.

    Often thought to not be profitable enough or not able to bring back enough return on investment, small businesses struggle to find financing. In their place, a growing number of neo banking alternatives have been created offering better transaction and funding services, they are believed to be a crucial step in ensuring SME development.

    Alternative banking for SMEs has many benefits over traditional banks:

    • Fewer fees: Neobanks do not absorb the same costs associated with up keeping physical bank branches, and therefore can offer smaller fees.
    • The convenience of setting up online: Traditional banks require a visit to one of their branches to open a bank account. On the other hand, neobanks enable businesses to open bank accounts online.
    • Software integration to reduce operating costs: Neobanks digitize all banking information and processes which can be transferred to other business software. For example, digital information retained by the neobank could be shared with accounting software, facilitating the accounting process by automating it, and reducing costs involved.
    • Spotlight on SMEs: Traditional banks conventionally adopt a ‘one-size-fits-all’ approach when it comes to their banking operations and services. But this leaves no wiggle room, if your business does not meet the requirements then you will be shown the door, with no effort made to find a suitable alternative. Neobanks are much more flexible in their way of operating and focus on a more tailored approach which inevitably offers better support and ultimately boosts your business growth.

    Foreign SMEs in Hong Kong

    For SME owners who are not located in Hong Kong, alternative banking may be the most convenient and efficient banking solution as it does not require them to travel to Hong Kong to open a bank account or manage their banking affairs(check our article on how to open a business account).

    Not to mention that the lower transaction fees, reduced foreign exchange commissions, and better customer support are also appealing incentives to go down the route of alternative banking.

    Our service is 100% online and it only takes 10 minutes to apply for a business account on Statrys.

    • Platform 100% digital: no need to visit a branch
    • 10 minutes of your time – skip your next coffee break, and you will have finished the application
    • Quick response – guaranteed to hear back from us within 48 hours after the request is submitted.
    • Our pricing plans are easy to understand and transparent.
    • Phone, Wechat, WhatsApp, Live Chat – get in touch with a real person to answer your questions!

    We host several innovative tools and service catered specifically SMEs looking to manage their banking activities online. Find out how Statrys can benefit your small business operations today!

    author
    Bertrand Théaud Statrys
    Bertrand Théaud

    Bertrand Théaud is the Founder of Statrys. His entrepreneurial journey has inevitably exposed him to the difficulty in dealing with banks, especially in Hong Kong. When he realised the number of SMEs going through the same challenging experience, he decided to start Statrys: a digital alternative to traditional banks specifically designed to serve the needs of Asian SMEs and start-ups...

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    Statrys Limited is licensed as a Money Service Operator (No. 19-02-02726) in Hong Kong. ‍ Statrys UK Limited is a Small Payment Institution (FRM: 911226) registered with the Financial Conduct Authority in the United Kingdom. Statrys UK Limited (FRM: 902805) is a registered agent of PayrNet Limited (FRM:900594), an Electronic Money Institution authorised by the Financial Conduct Authority in the United Kingdom under the Electronic Money Regulations 2011 for the issuing of electronic money. Trade financing services are offered by our partner, Velotrade Management Limited, regulated by the Securities and Futures Commission of Hong Kong (CE Ref #BJL007)