Access to appropriate sources of finance constitutes one of the most significant constraints on promoting innovation and the competitiveness of European small businesses and start-ups. Market deficiencies lead to a lack of financial support for young growth-oriented European companies and for entrepreneurship in general. This necessitates public actions to overcome these hindrances and to leverage the limited amounts of private finance available to close this investment gap. The most important weaknesses are the following:

• Lack of private investment in start-up businesses: Research has consistently shown that the most prominent and permanent market deficiencies are in the seed and start-up stages of firm development.
• Fragmented venture capital markets hinder business growth: A single European venture capital market is needed to overcome the fragmentation and small scale that currently characterise the sector. The necessary scale and the strong participation of private investors that are the hallmarks of a self-sustaining venture capital market can only be achieved at European level. The goal of EU involvement is to promote the development of a self-sustaining, strong venture capital sector.
• Gaps in the availability of loans: A discernible gap exists in the lending to small and medium-sized enterprises with European and global ambitions. Bank lend less to smaller firms where the risk is higher because this is more expensive due to higher administrative costs and higher capital requirements. Overall, this leads to loan pricing that in many cases makes lending unattractive for SMEs.