Our latest study, “Access to Equity Financing for European Defence SMEs,” sheds light on the implications of restricted financial access for defence SMEs in the EU. Securing funds is vital in the current geopolitical context. The resurgence of war in Europe and rising tensions have created a new urgency for the EU to better address existing and foreseeable security and defence challenges.
Key findings from our study reveal that 40% of SMEs find access to finance challenging. Moreover, a considerable share of defence SMEs refrained from pursuing either bank loans (44% of SMEs) or equity financing (68%) during 2021-2022. Financing is crucial for EU defence sector companies to offset years of underinvestment. Our study identifies an average equity financing gap of EUR 2 billion and a debt financing gap of EUR 1 to 2 billion for SMEs and Midcaps in the defence sector.
This limited access can be attributed to the unique characteristics of the defence industry, including its dependence on public procurement, stringent regulations, and the need for cautious approaches in military technology investments. Additionally, ethical considerations and a too rigid interpretation of ESG criteria contribute to the challenge.
While increased defence spending, technological advancements, and the dual-use nature of technologies attract private investor interest in the defence and dual-use technology sector, it falls short of meeting current needs. Public sector involvement, through specific programs and national promotional banks, plays a crucial role in signalling to private investors and mitigating investment risks.