Government funding of small and medium-sized enterprises in Finland

Not unlike elsewhere, the government in Finland has been keen to provide funding to Finnish firms, especially to small and medium-sized enterprises (SMEs). In this paper we review, in the light of the economic rationales for public efforts to finance SMEs, all of the government institutions providing SME funding in Finland and the objectives and tasks assigned to them. Using recently collected data on SMEs, we then explore what kinds of SMEs apply for and receive government funding in Finland. We find i) that the “rhetoric” on what the institutions are set to do is not fully in line with what the economic rationales suggest; ii) that the total amount of government funding awarded to SMEs has over the past four years grown quite rapidly and simultaneously with increases in the availability of external finance on the marketplace; and iii) that every third SME has applied for and received at least one type of government funding. Our econometric results suggest that overall, the characteristics of SMEs applying for and receiving different types of government funding are consistent with the official rhetoric and the general idea of what the different institutions are set to do. Our results highlight the importance of emphasizing selectivity in the provision of government funding to SMEs, as we also find some evidence that the fundamental screening problem of finding out SMEs truly in need for government funding is not addressed adequately in practice.