The importance of being an SME

If you are familiar with the universe of EU-funded projects, you may have found yourself wondering why the word “SME” – acronym for “small and medium enterprise(s)” – is so recurrent in guidelines and regulations from the European Commission. Why is it so important in some specific funding schemes, such as the EIC Accelerator, to be able to verify your SME status, meaning that your company can be considered an SME according to the definition established by EC Recommendation 2003/361/EC?

And not just is the initial verification of your SME status crucial, but also to remain an SME for the full duration of your project.

The reasons are related to the importance that European policies grant to small and medium size companies, that are encouraged to innovate and boost European competitiveness via specific grants, specifically designed and reserved for this type of legal entities.

But being and remaining an SME is not always the destiny of small companies: therefore, what happens if your “SME status”, that was an eligibility condition to apply to a specific EU grant, is lost during the implementation of your project? Do you lose it all? Not necessarily.

In case your company experiences natural growth (art. 4.2 of EC Recommendation), you can still benefit from SME status with the purpose of finalizing the project. The new status, however, shall apply in case the EC thresholds are surpassed for two consecutive years.

On the contrary, art. 4.2 would not apply in case of changes in ownership following a merger or acquisition. In this case, enterprises will be assessed based on their new shareholder structure at the time of transaction.

Here are the steps we suggest you follow in case of doubts on your SME status:

• First of all, if you are envisaging a potential merger or acquisition, run an SME self-assessment in advance and check if the changes apply to your status. The results may impact your decision about the transaction and you may consider postponing it until the end of the project.
  Important! Keep in mind that your country may give different applications/interpretation to the definition of SMEs, but the EC will always base its assessment on the European recommendation.
• If you finally decide to run the transaction, inform your Project Officer as soon as possible. This is in fact a general obligation stated by the Horizon Europe Grant Agreement.
• After informing the Project Officer, you will probably be indicated to contact the EC legal services in charge of the SME status verification and will need to provide specific documents for them to assess the changes and establish if you are still an SME or not.
• If not, don’t panic! You will still be able to receive reimbursement of the (eligible) costs incurred so far. The Project Officer will open a special procedure that will finalize with the preparation and submission of a final report on the work done until the moment the status was lost, and the further reimbursement of the accepted costs.

On the negative side, the full procedure can take time and generate some administrative burdens, especially in mono-beneficiary projects such as EIC Accelerator, where the full project will be terminated. On the positive side, we have experience with this and are here to help if you worry about losing your SME status during the implementation of the project.
Don’t hesitate to get in touch at hello@getpolite.eu