Public Financing Support Options to Micro-Enterprises for Innovation

Abstract

Innovation related to the technological advances of entrepreneurship are essential in Industry 4.0. The availability of sufficient funding is one of the factors promoting innovations in companies. Therefore the issue of access to finance remains relevant. The study investigates the availability of public financial support for micro-enterprises - the largest enterprise category in Latvia (approximately 94%), focusing on those for whom the introduction of innovations is essential for their growth. In an ad hoc survey of companies registered in Latvia in nationally defined sectors, entrepreneurs disclosed their sources of funding over the three-year period: 2015-2017. Valid responses from 2511 companies, of them 1879 were micro-enterprises, revealed not only the diversity of their financial sources but also the reluctance of external financiers to support companies willing to innovate. Out of the micro-enterprises surveyed, which required new or additional funding during the three-year period in question, 21% stated that the goal of funding was “the development and introduction of new products or services”. Innovation as an important factor was stated by 28% micro-enterprises. According to the data processed by SPSS, micro-enterprises still prefer internal financing (64%) among many sources, whereas only 11% of the respondents used public funding. The micro-enterprises, for which innovation is important, relied solely on internal finance (65%), while public support was used by 13%. Based on the results of the study of Latvian companies, the need to improve the availability of financing for micro-enterprises is highlighted by creating a targeted\external funding offer in the form of a financial instrument based on public finance support.