Financial Support for the Sustainable Development of Small and

Medium-sized Businesses in the Regions

Inna M. Shor

, Dildarakhon A. Shelestova

and Lyubov I. Galamyan

Volgograd State University, 100 Prospeсt Universitetsky, Volgograd, Russia

Russian Presidential Academy of National Economy and Public Administration,

84 Prospect Vernadskogo, Moscow, Russia

Keywords: Financial Support, Sustainable Development, Small and Medium-Sized Businesses, Regions, Government

Support, Coronavirus Pandemic.

Abstract: The sustainable development of small and medium-sized businesses in the regions of the Russian Federation

is largely related to the volume and quality of their financial support. At the same time, the state, banks,

microfinance organizations, factoring and leasing companies and crowdfunding platforms play an important

role in the formation of financial support for small and medium-sized businesses. Currently, due to the

coronavirus pandemic, issues related to the improvement of banking and non-banking forms of financial

support for small and medium-sized businesses in the regions, as well as state support for their sustainable

development, have become topical. These circumstances predetermined the goal of our research, related to

the analysis of the current situation and identification of problems and directions for the development of

financial support for small and medium-sized businesses in the regions of the Russian Federation. To achieve

this goal, we reviewed the applied and theoretical works of modern authors, which were devoted to the

financial support of small and medium-sized businesses. Moreover, we used the following scientific methods:

systematic approach, generalization, analysis, synthesis, comparison and expert assessments. As a result of

the study, urgent problems of financial support of small and medium-sized businesses through bank loans,

microfinance, factoring, leasing and crowdfunding were identified, which made it possible to draw

conclusions about the need for these entities to take into account the diversity of funding sources, their

advantages and disadvantages, as well as development potential, taking into account the modern economic

conditions. This served as the basis for the development of measures to improve the current legislation of the

Russian Federation, which regulates the financial support of small and medium-sized businesses, and state

support for the sustainable development of these entities.

1 INTRODUCTION

Small and medium-sized businesses play a leading

role in the socio-economic development of the

regions of the Russian Federation. They participate in

the formation of a competitive market, acting as a

highly mobile sector of the economy that operates

with relatively low investment costs, stabilize the

socio-economic processes during periods of crisis due

to their inherent qualities (flexibility, agility, the

ability to adapt to environmental conditions), provide

jobs for labor resources released from other sectors of

https://orcid.org/0000-0003-4154-1199

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https://orcid.org/0000-0002-8665-4384

the economy. Thus, small and medium-sized

businesses act as drivers of economic growth not only

in regions, but also in the country as a whole.

In the current unstable business environment

caused by the coronavirus pandemic, the risk of

insolvency (bankruptcy) of small and medium-sized

businesses increases as a result of their inability to

withstand the negative impact of external and internal

factors. In this situation, many small and medium-

sized enterprises went bankrupt or were on the verge

of insolvency (bankruptcy).

266

Shor, I., Shelestova, D. and Galamyan, L.

Financial Support for the Sustainable Development of Small and Medium-sized Businesses in the Regions.

DOI: 10.5220/0010589202660271

In Proceedings of the International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure (ISSDRI 2021), pages 266-271

ISBN: 978-989-758-519-7

All the aforementioned information indicates the

need for financial support for the sustainable

development of small and medium-sized businesses

in the regions of the Russian Federation, aimed at

strengthening their competitiveness. Financial

support, being the basis for the functioning of small

and medium-sized businesses, is directly related to

the formation, distribution and use of financial

resources. Moreover, its main functions are

manifested in the following:

 achievement of financial stability of small and

medium-sized businesses;

 identification of financial risks and threats in

the activities of small and medium-sized

businesses, as well as development and

implementation of measures to neutralize and

prevent them;

 promotion of the effective functioning of all

systems that ensure the continuous and stable

functioning of small and medium-sized

businesses.

2 RESEARCH METHODS

Issues related to the financial support of small and

medium-sized businesses were discussed in the works

of many researchers, including Antonova (2020),

Boboshko (2017), Bykovskaia (2018), Shadchenko

(2018), Shchurina (2020), etc.

In the course of the analysis of these works it was

concluded that, along with a deep degree of

elaboration of the problem under study, there are

controversial and, in some cases, contradictory

approaches to the formation of an economically

justified mechanism for financial support of small and

medium-sized businesses in the regions.

This predetermines the importance of continuing

the scientific and practical development of the issues

of the formation and use of various forms of financial

support for small and medium-sized businesses in the

regions in modern conditions.

The methodological base of our research consists

of theoretical and applied works of modern authors,

devoted to the financial support of small and medium-

sized businesses. In the course of this research, we

used the following scientific methods: the systematic

approach, generalization, analysis, synthesis,

comparison and expert assessments.

3 RESULTS

According to the data from the Unified Register of

Small and Medium-Sized Businesses maintained by

the Federal Tax Service, as of January 10, 2021, 5.7

million small and medium-sized businesses were

registered in the Russian Federation (Unified Register

of Small and Medium-Sized Businesses, 2021). At

the same time, in the structural aspect,

microenterprises registered as individual

entrepreneurs prevailed (about 60%), and in the

territorial aspect small and medium-sized businesses

registered in the Central Federal District exceeded

(31%).

The coronavirus pandemic had a significant

negative impact on the number of operating small and

medium-sized businesses in the Russian Federation

and their financial results. In particular, the first half

of 2020 was characterized by the following

indicators:

 the number of small and medium-sized

businesses decreased by 2.6% to 6.1 million

units compared to the same time last year;

 the number of people employed in small and

medium-sized businesses decreased by 2.4% to

15.3 million people;

 taking into account inflation, small and

medium-sized businesses were in a state of

stagnation;

 the forced suspension of the activities of small

and medium-sized businesses had a negative

impact on their financial performance.

3.1 The Role of Banks in the Financial

Support of Small and

Medium-sized Businesses in the

Regions

However, despite the presence of the aforementioned

negative phenomena, the analysis of the loan

portfolio of small and medium-sized businesses in the

regions suggests that most of the indicators for bank

lending have grown, as evidenced by the results of a

study by the United Credit Bureau and Frank RG

(What happened to SME loans in the crisis quarter:

research by Frank RG and OKB, 2021).

According to this study, small business has

remained the leader in bank lending to small and

medium-sized businesses in terms of turnover since

2016. At the same time, in the second quarter of 2020,

small and medium-sized businesses not only did not

stop attracting bank loans, but, on the contrary, the

share of borrowers represented by these entities and

Financial Support for the Sustainable Development of Small and Medium-sized Businesses in the Regions

267

their loan portfolio increased. The main reason for

this lies in the governmantal anti-crisis programs and

the massive refinancing of bank loans by entities that

faced difficulties during the coronavirus pandemic.

As of July 1, 2020, “Wholesale and retail trade;

repair of motor vehicles and motorcycles” dominated

the sectoral debt makeup of small and medium-sized

businesses (20.2%). Regardless of the industry

specifics, the total number of small and medium-sized

businesses with bank loans amounted to 5.9% of the

total number of these entities. At the same time,

during the crisis, banks issued loans to small and

medium-sized businesses for a shorter amount of time

in comparison with the pre-crisis period.

The volume of sureties and independent

guarantees of regional guarantee organizations in the

first half of 2020 amounted to 25.1 billion roubles,

which is 17.5% more than in 2019. At the same time,

the influence of regional guarantee organizations on

lending to small and medium-sized businesses in

2020 was especially pronounced in non-capital

regions of the Russian Federation, where the share of

guaranteed loans increased significantly compared to

last year. In the capital, a reverse trend was observed

– with a lower amount of collateral, there was an

increase in the volume of bank lending, which

indicates a decrease in the share of guarantees of

regional guarantee organizations in issued loans and

the greater ability of borrowers to provide collateral

security.

The government played an important role in the

banking form of financial support for small and

medium-sized businesses in the regions during the

coronavirus pandemic. Since April 2020, when a set

of measures for state support of business in

connection with the coronavirus crisis was adopted in

Russia, its volume for small and medium-sized

enterprises has exceeded 1 trillion roubles. In total,

based on the results of seven months of 2020, small

and medium-sized businesses received 3.9 trillion

roubles, including 1 trillion in the form of soft loans

(Small and medium-sized businesses received 1

trillion roubles of soft loans, 2021). At the same time,

banks actively participated in the implementation of

government measures to support entrepreneurship

and maintain employment. This allowed to maintain

about 8 million jobs during the restrictions. The main

conductors of these measures were Sberbank and

VTB. The Sberbank and VTB had 43% and 21% of

the volume of loans with state participation,

respectively.

3.2 Non-banking Forms of Financial

Support for Small and

Medium-sized Businesses in the

Regions

Nowadays, microfinance organizations are actively

involved in the financial support of small and

medium-sized businesses in the regions that are

denied by banks (Tsvetkov, 2019). Despite higher

interest rates and a long repayment period, small and

medium-sized businesses often turn to microfinance

organizations due to the higher speed of issuing a

short-term loan and a reduced package of documents

required to obtain a loan.

By the beginning of October 2020, almost 4.5

thousand small and medium-sized businesses

received loans from microfinance organizations,

which became possible, among other things, due to

the state's additional capitalization of microfinance

organizations with state participation in the second

and third quarters of 2020 (MFOs supported small

businesses, 2021). A significant part of the loans

accounted for microloans to cover unforeseen costs

and support the operating activities of small and

medium-sized businesses. At the same time, every

tenth loan was issued by small and medium-sized

businesses of St. Petersburg and the Leningrad

Region, whose business is most often associated with

construction, repairs, and the supply of goods and

services to state institutions.

Along with microfinance, the products of

factoring and leasing companies are in high demand

among small and medium-sized businesses (Kosoe,

2019).

According to the Association of Factoring

Companies, at the end of 2019, factoring companies

financed about 4.0 thousand small and medium-sized

businesses in the amount of over RUB 530 billion, the

factoring portfolio of this segment as of January 1,

2020 reached RUB 101.5 billion. (Association of

Factoring Companies, 2021). In 2019, small and

medium-sized businesses were paid over 530 billion

rubles, which is 169 billion rubles. more than in 2018

(+ 47%). At the same time, in the sectoral aspect,

trade prevailed in the amount of paid out financing,

and in the territorial aspect – Moscow and the Central

Federal District.

The coronavirus pandemic has had a significant

impact on the factoring market in Russia. For

example, the development of online technologies

resulted in an increase in the number of factoring

companies, which had a positive effect on the costs of

small and medium-sized businesses in the form of a

decrease in the cost of factoring. We also note the

ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure

268

development of the practice of using an open-ended

contract in factoring, to which new debtors can be

added, as well as accounting for the operational

distribution of limits among debtors and the absence

of collateral.

According to Expert RA, the volume of leasing

financial support for small and medium-sized

businesses at the end of 2019 increased by 27%

compared to the previous year and amounted to 795

billion roubles, which corresponded to 53% of the

leasing market in Russia. In the territorial aspect, the

largest volume of lease payments receivable fell on

Moscow, St. Petersburg and the Volga Federal

District (Expert RA, 2021).

Car leasing accounted for about 70% of the total

volume of leasing financing for small and medium-

sized businesses. Moreover, more than 50% of car

leasing accounted for trucks. In turn, the coronavirus

pandemic had a negative impact on car leasing due to

a decrease in demand for taxi services and the

suspension of car sharing, which are the main drivers

of the market in 2019. At the same time, thanks to the

state program on preferential car leasing and a

reduction in the key rate, the consequences of this

influence were mitigated.

Crowdfunding is also a tool for sustainable

development of small and medium-sized businesses,

which allows attracting funds from private investors

to finance projects of these entities (Avanesyan,

2018). Crowdfunding platforms are now becoming an

important hub for private investors when entering

new assets. The unique feature of this tool is

manifested in the transformation of social capital

accumulated by social networks into financial capital.

Another important component of crowdfunding is the

absence of traditional intermediaries in financing (the

investor works directly with the recipient).

4 DISCUSSION

Improving the efficiency of financial support for the

sustainable development of small and medium-sized

businesses in the regions involves the use of an

integrated approach that takes into account the variety

of funding sources, their advantages and

disadvantages, as well as the development potential,

taking into account modern economic conditions. In

this case, it is important to be guided by the following

principles:

 integration with the general support system for

small and medium-sized businesses;

 target orientation – ensuring the effective

formation, distribution and use of financial

resources of small and medium-sized

businesses and the creation of conditions for

their stable financial development under the

influence of factors of the internal and external

environment;

 flexibility and agility – facilitating a timely

response to any manifestations of internal and

external environmental factors that can lead to

a disruption in the financial balance of small

and medium-sized businesses or any deviations

from the planned results, which makes it

possible to develop corrective actions

necessary to maintain the achieved or achieve

the desired the state of financial resources of

small and medium-sized businesses in terms of

their formation, distribution and use;

 conditionality – ensuring the processes of

formation and distribution of financial

resources of small and medium-sized

businesses, taking into account their needs in

the creation of non-circulating and circulating

assets, as well as the implementation of

production and sales of products.

The main result of financial support for small and

medium-sized businesses in the regions is the level of

their financial stability, the achievement and

maintenance of which is carried out through the use

of a certain set of financial methods and tools in

conjunction with regulatory and information support.

Financial support of small and medium-sized

businesses is a rather laborious procedure, the

complexity of which is associated with the need for

strategic and operational-tactical analysis of a

sufficiently large amount of diverse data. Therefore,

one of the tasks in the implementation of financial

support for small and medium-sized businesses in the

regions is the choice of the optimal information field,

so that the volume of operatively controlled

information is minimal, comprehensively

characterizes the current situation of small and

medium-sized businesses, made it possible to

correctly assess the progress of the implementation of

the goals of ensuring their financial sustainability, as

well as identify potential problem areas and

bottlenecks in the field of finance of small and

medium-sized businesses.

5 CONCLUSIONS

Regional banks occupy an important place in the

financial support for the sustainable development of

small and medium-sized businesses in the regions of

Financial Support for the Sustainable Development of Small and Medium-sized Businesses in the Regions

269

the Russian Federation, since they are closer to

regional business than federal banks and take into

account their needs as fully as possible. At the same

time, a significant factor in the stable functioning of

regional banks is the programs of state support for

small and medium-sized businesses, which imply the

establishment of loyal requirements for ratings

necessary for the participation of regional banks in

them. At the same time, at present, prohibitive rating

levels have been established for many of these

programs, which do not allow many regional banks to

participate in them, which reduces their client base

and weakens their competitive positions. This, in

turn, negatively affects the quality and level of

availability of bank loans for small and medium-sized

businesses.

As mentioned above, the bulk of state support for

small and medium-sized businesses fell on banks. At

the same time, microfinance organizations are fintech

companies with sufficient competence and ample

opportunities to participate in supporting small and

medium-sized businesses from the affected sectors of

the Russian economy through preferential

microloans. Accordingly, their recognition as

systemically important organizations will allow

microfinance organizations to be conductors in

solving important state problems, for example,

through certain mechanisms for financing the salary

needs of small and medium-sized businesses. This, in

turn, will contribute to the recovery of the regional

economies after the coronavirus pandemic.

With regard to the factoring form of financial

support for small and medium-sized businesses, we

note that one of the topical issues is related to the

participation of these entities in government

contracts. So, the current legislation of the Russian

Federation allows you to transfer to a third party the

right to claim a debt that a customer has arisen under

a state or municipal contract. However, the Ministry

of Finance of Russia and the Federal Treasury point

to the impossibility of transferring money to an

organization that is not a party to the state contract.

At the same time, one of the tasks of the national

project "Small and Medium Enterprises and Support

of Individual Entrepreneurial Initiatives" is to ensure

the extension of the factoring mechanism to suppliers

in the procurement of small and medium-sized

businesses. Accordingly, it is necessary in the

legislation on the contract system to secure the right

of the customer to make payment under the fully or

partially executed state and municipal contract in

favor of the factoring company, to which the supplier

(contractor, performer) has ceded the right of

monetary claims under such a contract.

The development of the leasing form of financial

support for small and medium-sized businesses is

largely associated with the improvement of the

current legislation of the Russian Federation, for

example, in terms of establishing the species diversity

of leasing, terminating the lease agreement, pledging

the subject of leasing, etc.

To ensure financial support for small and

medium-sized businesses through crowdfunding, it is

necessary at the legislative level to consolidate the

expansion of types of financing available on

investment platforms, electronic registration of real

estate pledges, tax incentives for investments in small

and medium-sized businesses through investment

platforms, etc. (Neopulo, 2020).

In conclusion, we would like to note that without

diminishing the importance of implementing the

above measures to improve the financial support of

small and medium-sized businesses in the regions,

one should take into account the key role of the state

(Shor and others, 2020). Despite the high importance

of anti-crisis measures developed and implemented

by the state, not all of these measures have a long-

term impact, since there are risks of an increase in the

fiscal and credit burden, as well as administrative

costs after the end of the epidemic.

Currently, small and medium-sized businesses,

among the most serious problems, highlight the

inability to pay property tax and rental payments, as

well as the lack of funds to pay salaries to employees

and insurance contributions from the wage fund. At

the same time, it is important to say that during the

coronavirus pandemic, government support was

mainly aimed at businesses from the official list of

affected industries, and most small and medium-sized

businesses could not use it, despite the fact that they

tried to do so. In addition, the existing tax and credit

deferrals, as well as the ability to restructure debts,

are insufficient. Therefore, to promote the sustainable

development of small and medium-sized businesses

in the regions, a new restructuring is required. In

addition, it is necessary to systematize all measures of

state support for small and medium-sized businesses,

regardless of the department and the region, in one

digital platform, as well as the establishment of clear

and open criteria for its provision. In turn, the analysis

of the effectiveness of such support will allow the

creation of a single register of its recipients.

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