The SME definition is pretty simple: it stands for small and medium enterprises – the kind of businesses that make the world go round, literally.
According to the World Bank, the SME sector represents 95% of registered businesses globally and accounts for over 50% of total employment. From micro businesses, like local coffee shops and family-run bakeries, to growing tech startups and medium-sized companies in the manufacturing industry, SMEs play the biggest role in the economy on a global scale.
Medium-sized enterprises keep local communities alive and make up the vast majority of jobs there, providing opportunities where large corporations often can’t.
Here, we’ll break down what exactly an SME is, how different regions define it, what makes these small and medium-sized businesses unique, and why fintech solutions are changing how these companies operate.
Definition of small and medium enterprises (SMEs)
So, what are small and medium-sized enterprises in business terms? The SME definition isn’t the same everywhere, but the idea stays consistent: these are companies with fewer employees, smaller annual turnover, and limited total assets compared to large enterprises.
In the European Union, the European Commission defines an SME as a business that:
Employs fewer than 250 people and either
Has an annual turnover of less than €50 million, or
Has a balance sheet total under €43 million.
That definition helps policymakers provide government assistance, tax relief, and easier access to SME loans for such businesses.
In the United States, things work a bit differently. The Small Business Administration (SBA) classifies small businesses based on industry type – for example, a manufacturing business may still be considered small even with several hundred employees, depending on its operating revenue.
Other regions, like Canada, set an upper limit for the number of employees in medium-sized enterprises at 499 people (according to Statistics Canada).
The UK has its own SME definitions too. The UK government largely aligned with the EU definition but has, in some contexts, adjusted the upper limit for medium-sized enterprises to 499 employees, effectively broadening the “SME” category compared to the core EU definition.
Key features of small and medium enterprises (SMEs)
What makes an SME different from a large company or corporation isn’t just size – it’s their structure and approach. Let’s look at the main traits:
Simplified management and direct control: SMEs usually have a small leadership team or even a single owner, making quick decisions without layers of approval.
Flexibility: Because they’re smaller, they can adapt to changes faster than large enterprises tend to and better manage operating revenue.
Limited access to capital: Raising funds is often a challenge, especially when traditional banks demand high collateral.
Niche focus: Many SMEs play a major role in the service sphere: more than half of customers are served by them.
Innovation-driven: With fewer formalities, SMEs can experiment, pivot, and innovate more freely – IT startups are a good example, small research teams who can innovate freely under small and medium-sized labs, unlike under large businesses in some cases.
These qualities make them crucial for economic development – they fill market gaps, create new jobs, and keep competition alive.
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The importance of SMEs in the economy
It’s hard to overstate how important small companies are to a country’s economy. As we mentioned before, according to the World Bank Group, small and medium enterprises represent about 90% of all businesses and more than half of global employment.
In the European Union, small and medium businesses account for over 99,8% of all businesses and generate around 67% of the total private sector workforce, and generated about 58% of the EU’s GDP in recent years. Micro-enterprises (fewer than 10 employees) alone account for nearly half of the total employment.
Similar numbers go for most countries, except the USA, where medium-sized companies contribute to GDP less than 50% of the total.
Region | % of small and medium enterprises | % of Employment (Private Sector) | % of GDP/Value Added (Private Sector) |
EU | ~99.8% | ~67% | ~58% |
UK | ~99.8% | ~60% | ~52% (of turnover) |
Canada | ~98% | Majority (>10 million jobs) | ~52% |
China | >98% | N/A (major contributor) | ~60% |
USA | ~99.9% | ~46% | ~44% |
But statistics cannot illustrate that they don’t just employ people – they drive innovation. A lot of new technologies, apps, and services actually start within small companies before being scaled up by large firms.
McKinsey did a study and found that companies that were once micro, small, or medium-sized enterprises at some point since 2000 now represent 17% of publicly traded companies valued at $10 billion or more. Many of today’s large tech, big enterprises, and manufacturing companies started small, including Meta, Zoom, Monster Beverage, and Tesla.
Medium businesses also:
Strengthen the country’s economy by supporting communities and suppliers, creating jobs.
Contribute significantly to GDP and exports: Italian SMEs generate up to 53% of the country’s total exports. In Portugal, medium enterprises represent 98,4% of total exporters, highlighting that a large number of smaller businesses are engaged in exporting activities.
Encourage entrepreneurship and economic growth.
Without medium-sized businesses, most countries would lose their creative core and their ability to respond to new challenges, despite the significant role of large companies.
Key challenges small and medium enterprises face
Of course, being small and agile also comes with a fair share of problems. Smaller businesses often face issues that large businesses can easily overcome.
1. Access to finance. Getting funding is one of the biggest headaches for medium-sized enterprises. Traditional banks tend to see small and medium-sized enterprises as risky because of their limited balance sheet and annual revenue. The approval process for business loans is slow, and the interest rates can be high.
2. Cash flow management. Most small businesses depend on timely payments from clients. When invoices are delayed, everything freezes – from payroll to supply orders. It makes cash flow one of the biggest obstacles to business growth.
3. Digital transformation. While big corporations have entire tech departments, microenterprises and medium-sized businesses often can’t afford the same. Transitioning to digital systems, online banking, or automated accounting requires money and expertise that many small and medium-sized businesses lack.
4. International expansion. A lot of medium-sized businesses dream about going global. But managing currency exchange, dealing with cross-border transactions, and meeting compliance obligations across different regions can be complicated. That’s where fintech companies like Genome come in – offering tools that remove these old financial barriers.
How fintech solutions support SMEs
Fintech companies are usually medium-sized enterprises themselves. They have a much smaller number of employees, and their balance sheet does not count in billions, but as a medium-sized enterprise, they are effective.
Fintech, short for “financial technology,” has become the backbone for many companies and businesses: micro businesses, small and medium enterprises, and large companies.
The reason is flexibility and innovation: fintech implements new features faster and has a very direct focus on digital payment, unlike big banks, which have multiple sources of income.
Now, the digital payments segment itself, already heavily driven by fintech innovation (like digital wallets), accounted for nearly 48% of global financial transactions in 2023.
So, how could it be useful for medium and small business administration?
Online business accounts are easy to navigate: Opening a business account online now takes much less time. For instance, Genome’s business account offers a wide variety of features, catering to the company’s needs.
Fast payments: a medium business can send and receive money instantly – even across borders. All thanks to SEPA Instant Transfers, Faster Payments, etc.
Multi-currency accounts: perfect for companies with international clients or suppliers, allowing transactions in different currencies. Inside Genome, you can have multi-currency accounts in 12 currencies: USD, GBP, EUR, PLN, CHF, JPY, CAD, CZK, HUF, SEK, AUD, and DKK. Exchange currencies between accounts or send SWIFT transfers.
Automated bookkeeping: Fintech apps help track expenses, invoices, and taxes automatically.
Alternative financing: Instead of traditional loans, small businesses can use peer-to-peer lending, invoice factoring, or crowdfunding platforms.
In short, fintech bridges the gap between small business needs and what traditional financial institutions can offer and provides the best and most user-friendly payment solutions.
Why choose Genome for SME banking
If you’re a small business owner looking for an all-in-one digital banking solution, Genome is what you need. Genome is an electronic money institution (EMI) licensed by the Bank of Lithuania, which provides modern financial tools for small and medium enterprises, freelancers, and startups.
Here’s what makes Genome stand out:
Fast setup: Open a business account online and get a dedicated IBAN in EUR for all your business needs.
Multi-currency accounts: the one multi-currency wallet to rule them all. It will be your favorite feature if you are doing business with other countries: store funds in 12 currencies and make international transfers.
Batch transfers and instant payments: Save time with automated transfers: pay contractors and business partners.
Security first: Genome follows strict PSD2 regulations, plus full AML/KYC verification – onboarding could take some time, but security measures are worth it.
Merchant accounts now available: start accepting payments via Open Banking!
For growing medium-sized enterprises SMEs, Genome provides transparency, flexibility, and the ability to work on a global scale – without the usual red tape of big banks. Don’t wait – access some of the best financial services for small businesses.
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in Genome online
What to consider before choosing a multi-currency account
One more thing, multi-currency accounts can be a game-changer for small and medium-sized enterprises, but there are a few things to keep in mind before signing up:
Some payment providers may charge small monthly fees or limit free transactions.
Regional regulations vary, especially for developing countries.
Not every provider supports all currencies – check if your key markets are covered.
Always pick a licensed provider with some experience. It would be better if they had passed a recent audit from the Central Bank to ensure compliance and fund protection.
Choosing wisely helps avoid unnecessary costs and makes your life easier.
