This article highlights the complexities of the EU’s SME definition, which is crucial for accessing significant funding and benefits. It warns against common self-assessment errors, emphasising that incorrect data, oversight of group company structures, misclassification of investors, and timing issues can lead to businesses unknowingly losing their SME status. While EU assessment tools exist, they are only as accurate as the input data. 

If you ever looked for EU funding you probably came across the SME definition and self-assessment tools (like the one on the Funding & Tenders Portal). In this article we will discuss the various ways you might get the wrong assessment. And why it’s always the SME’s fault.

The SME definition could be found here. The EC, free assessment tool, is available on this website. Your local agencies most likely have their own tools in local languages. But the issue is that the assessment is run based on the data you input. Ergo, wrong data will cause a wrong result. The tools even warn you: This result is indicative only.

Being an SME in the EU isn’t just a label – it’s essentially a golden ticket to a lot of funding, tax perks, and lighter rules that bigger companies can’t access. Knowing your SME status is crucial before applying to EC funds, including cascade funding calls. 

We can assure you, that unless you are an autonomous entity (very rare case), your self-assessment will be time consuming and complicated. You need a deep understanding of the SME definition to be able to self-check your status. The two biggest killers of accuracy are ownership link and missing/incorrect data. 

The grey areas of defining an SME

Here are some grey areas of the SME definition and self-check, where many businesses lose SME status without realising it:

1. You have to take into account the whole group of companies while calculating the relevant values. Many founders think SME status is only about their own company’s size. They skip aggregating employee and turnover data from linked/partner companies and as a result, the form thinks you’re an autonomous entity. Often they forget to include indirect ownership through holding companies and suddenly, they’re no longer an SME.

    

2. If a venture capital fund owns more than 25% but less than 50%  you might still be considered autonomous, but it’s very easy to misclassify investors!   or an independent VC often includes their dominant role inside the investment agreement, that founders do not read as such or tend to overlook or forget about them.

    

3. Many SMEs don’t have data from their investors or partner companies – especially if those are foreign entities or large corporations. This leads to incorrect or incomplete data sets. Without those numbers, founders guess, which can swing the result either way.

    

4. It could also be a time issue! If you apply for funding in one year, but sign the grant agreement in the next one, your status can change. SME status is determined from the two latest approved financial years. Crossing the threshold in just one year, will not impact your status, but if you cross the threshold two years in a row, you lose SME status.

    

5. Your status may change during the grant execution – and it matters! You may lose the grant. 

How we can help you

Around 35-40% of SMEs make serious mistakes while providing data, often because they are not aware of how to correctly calculate their SME status or which data should be taken into account. 

If you are uncertain about your status, reach us at info@fundingbox.com,  we can not give you a legal guarantee, but we are here to help you figure out the most accurate answer!

The good news is, from our own experience and cascade funding statistics in the open calls coordinated by us, only about 2% of companies that believe they are SME actually do not have this status. 

Stay tuned for our series: SME definition unpacked

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*We used AI for the research and to polish the text

Sources