E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 172 European Integration Studies No. 14 / 2020, pp. 172-184 doi.org/10.5755/j01.eis.1.14.26569 Abstract Public Financing Support Options to Micro-Enterprises for Innovation http://dx.doi.org/10.5755/j01.eis.1.14.26569 Innovation related to the technological advances of entrepreneurship are essential in Industry 4.0 and are essential for economic development of the micro companies. The availability of sufficient funding is one of the factors promoting innovations in companies. 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 compa- nies 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-enter- prises, 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 survey 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 pub- lic 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. KEYWORDS: finance institutions; financial instruments; micro-enterprises; public financing; state aid. Introduction Ilona Beizitere RISEBA University of Applied Sciences The Fourth Industrial Revolution (Industry 4.0) emphasizes innovations as technological advanc- es in business. To remain competitive, companies need to be innovative, which means that they need to adjust their strategies offering products and services in a more innovative way. The losers will be not only companies that are late in introducing innovative solutions, but also the national economy as a whole (Schwab, 2016). Access to finance promoting their companies and public financial support is a way for the state to provide support to them. Financial support is one of the three main drivers of innovation performance external to the company (European Com- mission, 2016). Allocating the necessary resources to financial markets plays an important role, not only in the performance of companies as a whole, but also in the introduction of innovations in the company (Kerr, Nanda & Rhodes-Kropf, 2014). Submitted 03/2020 Accepted for publication 05/2020 Public Financing Support Options to Micro-Enterprises for Innovation EIS 14/2020 Ieva Brence Latvia University of Life Sciences and Technologies Biruta Sloka University of Latvia http://doi.org/10.5755/j01.eis.0.13.23562 173 E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 The study focuses on the availability of finance to micro-enterprises, which according to the Eu- ropean classification system (European Commission, 2003) is the most common type of non-fi- nancial companies. In Europe they represent 93 % of all businesses and employ 30 % of thr EU employees (Kraemer-Eis, et al., 2019). Micro-enterprises also form the largest share of com- panies in Latvia, where they account for 94 % of all the economically active enterprises (Central Statistical Bureau of Latvia, 2019). Their role in Latvian economy is comparatively higher than on average across the EU, with a business turnover of 26 % against the EU average of 17 % (Ministry of Economics of the Republic of Latvia, 2019b). In terms of employment growth, micro-enter- prises in Latvia have developed, with an increase of 10.8 % in the 2014-2018 period (European Commission, 2019). This highlights the need to support the smallest-sized companies. Although it is possible for companies of any size to be innovative, statistics do not provide an op- portunity to estimate the number of innovative companies in the micro-enterprises group. So far, neither Latvia (Central Statistical Bureau of Latvia, 2020) nor Europe (OECD/Eurostat, 2019) lists innovative companies in a group with less than 10 employees (corresponding to the number of micro-enterprises employees), but innovative companies are identified only among larger peers. According the definition “An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations. The minimum requirement for an innovation is that the product, process, marketing method or organisational method must be new (or significantly improved) to the enterprise” (Central Statistical Bureau of Latvia, 2020). Among other things important for development of the companies it was found that the level of innovation in companies in Latvia is lower than the average in the EU Member States (Ministry of Economics of the Republic of Latvia, 2019b), moreover there is a deterioration in access to public financial support, including guarantees, compared to 2017 (European Commission, 2019). Previous studies have shown improved access to finance as the most effective way of removing the barriers for company growth (e. g. Beck & Demirgüç-Kunt, 2006). However, a survey by the European Central Bank reports that access to finance largely remains a problem for the Euro- pean micro-enterprises as compared to companies of other size classes, with 9 % of micro-en- terprises reporting it as their biggest problem in 2019. This is an improvement since 2014 when 15 % of the micro-enterprises reported it as their most essential problem (European Central Bank, 2019). In contrast, the survey SAFE (Kwaak, et al., 2019) have stated that 56 % of surveyed innovative firms face barriers to obtaining funding, while 14 % have indicated that they do not have sufficient collateral or guarantees to obtain it. The survey sought to establish how prevalent was the problem of accessing external funding among companies, depending on their size and according to the legal address of the companies of Latvia. To investigate the current situation in Latvia, the services of a professional research company the Marketing and Public Opinion Research Center (SKDS) were used to conduct a representative survey for field work in order to obtain an ad hoc online survey (WAPI). It was conducted among the enterprises registered in Latvia to establish the financial sources predominantly used by the entrepreneurs, to find out the main constraints on the enteprises’ growth and the importance of availiability of public funding support to overcome them. This article examines the use of public support funding among micro-enterprises which have recognized that a lack of innovation is essential to their growth. By looking at the perceptions of businesses of public financial support implemented through the financial offers from the joint stock company Development Finance Institution Altum (ALTUM). The aim of the work is to investigate the differences in ambitions to access finance, including public financial support, between both micro-enterprises in general and the micro-enterprises willing to innovate. E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 174 A computer assisted web interview (CAWI) questionnaire was sent out to all companies with publicly available e-mail addresses in the period between October 1, 2017 and January 25, 2018. The request to fill out the questionnaire was addressed to the person in charge of the compa- ny’s finances. The target population included all companies across the territory of Latvia with activities in sectors eligible for public support. The entire segment studied included all the active businesses registered in the Register of Enterprises of the Republic of Latvia with the 11 defined NACE codes, i.e. 32 308 companies in total. For improved representativeness data were weighed by the share of the sector. Responses of 2511 companies were considered valid, of which 1879 replies were provided by micro-enterprises. Businesses were invited to reveal their financial sources over the period of three years: from 2015 to 2017. The results deemonstrated, that ma- jority of micro-enterprises still prefer internal finance among many sources, and only small part of the respondents used public funding. Surprisingly, while the micro-enterprises for whom the innovations’ financing is very important, relied solely on internal finance (65 %), whereas 13 % of the respondents used public funding. In contrast, venture capital funds and business angel investments suitable for supporting innovative companies were not used at all. This suggests that despite the policy measures established and implemented for improving access to public finance, including for the micro-enterprises there have been few targeted actions for making these measures work, and the proposals drafted may be delayed. It should be noted that the term “innovation” was not specified in our survey. By analyzing the answers, we relied on the entrepreneurs' own knowledge and perception of innovations, but the official defintition of this term was taken into account as it is available. A second aspect in the context of the assessment was availability of public funding to micro-enter- prises in the situation of seemingly ample availability of EU funds to Latvian businesses. The current situation, with EU Member States receiving significant public financial support, continues to show that lack of access to finance is one of the main obstacles to the growth of micro-enterprises including in- novative ones (Masiak, Moritz & Lang, 2017b; Kraemer-Eis, et al., 2019; OECD/European Union, 2019). Micro- enterprises financing – theoretical aspects The issue of access to finance for micro-enterprises with respect to available public support has not been a topic widely studied. Focused issues on support for innovative micro-business with public funding are also rarely addressed. Therefore, the literature review includes sources with conclusions on accessibility of finance also for other businesses, when they are relevant for mi- cro-enterprises. A range of authors have made attention to the study of the smallest businesses, as well as start-up companies. Since newly established companies are predominantly very small and do not exceed the size of micro-enterprises conclusions on start-ups have also been includ- ed. For example, Brown & Lee (2017) have acknowledged that small firms are different from big firms, and these features have significant ramifications for their ability to obtain finance and the problems related to financing seem particularly acute for the smallest firms and new start-ups. Until recently, access to finance was considered to be one of the biggest obstacles to the devel- opment and growth of such businesses, especially for those starting a new business. At the time, informal financing seemed to be crucial for business development. In addition, innovative com- panies usually need a significant, larger amount than traditional business, because they need additional funds for market research, research to implement their idea (Reynolds, et al., 2005). It is possible that World Bank researchers (Schiffer & Weder, 2001) were among the first to high- light company size as an obstacle to their development. An important conclusion of the study was that smaller companies have significantly greater problems with access to finance than larger companies. Thus, one of the main objectives in developing support policies for micro-en- 175 E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 terprises in order to create a level playing field among companies is to find a way to mitigate the effects of this difference. A survey (Masiak, et al., 2017a) of the EU Member States companies (according to the EU definition of SMEs) report that micro-enterprises differ from small and me- dium-sized companies in their funding models. The results reveal that micro companies most often rely on internal financial sources. Also, micro-enterprises appear to be less financed by subsidized loans or grants, although they are often targeted by special support programs. Traditionally, debt finance in banks, a type of financing with a low to medium risk profile, is suit- able for companies with proven business models. The availability of alternative financial instru- ments offered by the EU has changed this traditional risk-sharing approach, as it provides access to finance for higher-risk companies, such as for start-ups, high-growth and innovative compa- nies. Equity financing is more suitable for young and innovative SMEs, especially in the seed and early stages. The contribution of business angels can also be important in financing early-stage companies (OECD, 2015). Research suggests that financial instruments should be tailored to companies according to their size, degree of risk, business life cycle, level of novelty and other criteria, as in many places this type of public finance support in their current form are only avail- able to a small number of SMEs (OECD, 2018). Despite the substantial measures undertaken by authorities to increase financial support, it is found that small businesses, particularly start-ups, face some obstacles (Ruchkina, et al., 2017; Klein, et al., 2019). The most recent data show that micro-enterprises are less active in using external financial instruments than their larger peers, the reason possibly posed by difficulties in accessing them (European Central Bank, 2019). Similar observations are made in Australia, where micro-enterprises including innovators are more likely to face barriers to accessing fund- ing, although public support programs are offered (ASBFEO, 2019). A study on investments by the European Angels Fund have found that angel investments are an indispensable source of venture capital funding, especially for young, small and innovative start- ups and disproportionally target smaller companies. With the help of National programs, business angels in several countries (Germany, Spain, Ireland, Denmark, Austria, Finland and Belgium) were able to fill the funding gaps left by official venture capitalists with their unique investment approach (Gvetadze, et al., 2020). In addition, after two years of the angel investments, there has been a positive impact on companies' performance: employment, total assets and in particular turnover. Another important source of finance for start-ups and micro-enterprises to drive growth through innovation is venture capital funds. This source of finance is important not only for companies themselves, but also for the economies of EU Member States as a whole (Botsari, et al., 2019). According to this study, the investment of venture capital funds in Latvian companies is one of the lowest among the EU countries. The effect of the European funds guarantee programs is more pronounced for smaller and you- nger firms, and micro-enterprises benefit most from guaranteed loans. Guarantee schemes set up to support innovative companies (in Italy and the Nordic countries) contribute to an increase in intangible assets, which is a reliable sign of innovation in a company (Brault & Signore, 2019). An innovation mind-set is a mental framework that fosters development and the implementation of new ideas. Many policymakers, corporate leaders and managers need an updated understan- ding of management issues: a global mind-set, a virtual mind-set, an innovative mind-set and a collaborative mind-set are all key issues in the European Integration environment. Cognitive skills and mind-sets of global leaders are an important part of new management thinking (Kai- vo-oja & Lauraéus, 2018). The launch of new micro-enterprises, especially the development of innovative ideas, requires not only access to funding, but also mind-set support for the imple- mentation of their initiative in the form of advice and counseling. According to a study (Smus, E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 176 2017), the entrepreneurs receiving support in the form of both investment and consulting in accelerator centers are more likely to achieve better business results. Several authors (e.g. Hall, et al., 2000; Beck & Demirgüç-Kunt, 2006; Beck, et al., 2008; Moritz, et al., 2016) have emphasized the importance of company size in accessing finance, stating that small businesses are more restricted in this area than larger companies. They also have ac- centuates the importance of financial institutions that may provide for appropriate funding and enable access. The amount of EU funding allocated to each country in the multi-annual plan is based on market failure research and thus also limits the amount and focus of state aid funding. Mazzucato (2015) have emphasized the role of public agencies not only in addressing market failures, but also in providing broader support to companies in shaping public policy. Such an active approach can help to better target public finances than simply helping a large segment of SMEs. Mazzucato & Semieniuk (2017) emphasizes the role of state aid as the main risk-taking for business support, and a successful support policy must itself be innovative. Vivarelli (2013) emphasizes that public support, in order to be used as effectively as possible to ac- hieve nationally important goals, must be focused on carefully selected target groups of companies. In addition, banks and financial institutions should not apply the same standards to all companies (Janda, Rausser & Strielkowski, 2013). Policy makers should avoid some mistakes when drawing up programs of public support financial instruments. Contrary to the fact that the European Angels Fund business angels have made the largest investments (65 %) in the ICT sector (Gvetadze, et al., 2020), it should be noted that most fast-growing companies are companies in day-to-day business and service sectors, for which timely and appropriate support is important (Brown & Mason, 2016). Brown & Lee (2017) have drawn attention to the fact that companies can look for opportunities to use state aid loans in the absence of more suitable debt-based financial products in banks. Empirical research results and discussion Case Processing Summary Reliability Statistics N % Cronbach's Alpha N of Items Cases Valid 1879 100,0 0,823 13Excludedaa 0 0 Total 1879 100,0 Source: Authors’ constructions Table 1 Data reability tests by SPSS a Listwise deletion based on all variables in the procedure. Results A company survey was carried out in early 2018 to establish the options of micro-enterprises in Latvia for obtaining funding and the potential sources. The aim of the survey was to find out the funding needs in strategically important sectors, the importance of “access to finance”, the preferences of companies when choosing the sources and the extent to which micro-enterprises have sought for public support and obtained it. The survey data processing, reability tests (Ta- ble 1) have been done by the data analysis programme in the SPSS environment and report a high Cronbach’s alpha coefficient (Table 1). In response to the question “What types of financing does the company use now or in 2015-2017?”, 64 % of a total of 1869 micro-enterprises indicated that they relied solely on internal financing (loans from the owner, relatives, friends or related companies, proprietary investment in fixed assets, or undivided profits). The survey allowed micro-enterprises to indicate more than one source of finan- cing. Among the prevailing sources of external financing mentioned by the rest of the micro-enter- 177 E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 prises were: ALTUM loans – 4 %, EU funds – 6 %, bank loans guaranteed by ALTUM – 3 %, long-term or short-term bank loans, credit line, overdraft – 11 %, lease financing – 13 % and supplier or cont- ractor debt – 10 %. Other sources appeared rarely, e.g. only 10 micro-enterprises mentioned venture capital funds and business angel funds. Growth impediments were rated on a scale of 1 to 5. Mi- cro-enterprises that responded to “almost restrictive” (4) and “restrict” (5) are considered as limited. The total number of micro-enterprises whose access to finance factor limits their growth was 667 or 35 % of all surveyed micro-enterprises. Access to finance is most limited by micro-en- terprises operating in the following areas: construction (29 %), tourism (17 %), information and communication services (11 %), woodworking (7 %). The number of micro-enterprises which indicated that their lack of innovation limited their growth was 269 or 14 % of all micro-enterprises. The lack of innovation is most limited by mi- cro-enterprises, which has been operating in the following areas: construction (26 %), tourism (21 %), information and communication services (14 %), wood processing (11 %). It is noteworthy that the distribution of priority sectors is identical. In addition, the information and communica- tion services sector is not the first. The survey revealed that existing micro-enterprises in the start-up phase of a company (up to 2 ye- ars – 7 %) feel less the need for innovation for their growth. Their need is most recognized later, in 2 to 5 years of development (34 %). In total, 48 % of micro-enterprises who value innovation are also concerned about access to finance (130 out of 269). In turn, among those for whom access to finance is important, 19 % of micro-enterprises also gave important value to innovation (130 out of 667) main 33% 22% 26% 8% 11% Not constrained Almost not constrained Not affected / hard to say Almost constrained Constrained 0 10 20 30 40 50 60 70 Loan from owner Retained earnings Additional equity investments by the owner Other borrowings from relatives, friends or affiliates Leasing Debts to suppliers and contractors Bank short-term loan, credit line or overdraft Funding from EU funds Loan from Altum (including mezzanine loan) Bank loan with p artial Altum guarantee Bank long-term loan New owner or investor attraction Other sources of financing (on-line loan p latform, etc.) Factoring 33% 22% 26% 8% 11% Not constrained Almost not constrained Not affected / hard to say Almost constrained Constrained 0 10 20 30 40 50 60 70 Loan from owner Retained earnings Additional equity investments by the owner Other borrowings from relatives, friends or affiliates Leasing Debts to suppliers and contractors Bank short-term loan, credit line or overdraft Funding from EU funds Loan from Altum (including mezzanine loan) Bank loan with p artial Altum guarantee Bank long-term loan New owner or investor attraction Other sources of financing (on-line loan p latform, etc.) Factoring Figure 1 Evaluation of micro- enterprises in Latvia for which finances were important about the "impact of the lack of innovation on the company's growth” in 2017 (n = 667) Source: Authors’ constructions 33% 22% 26% 8% 11% Not constrained Almost not constrained Not affected / hard to say Almost constrained Constrained 0 10 20 30 40 50 60 70 Loan from owner Retained earnings Additional equity investments by the owner Other borrowings from relatives, friends or affiliates Leasing Debts to suppliers and contractors Bank short-term loan, credit line or overdraft Funding from EU funds Loan from Altum (including mezzanine loan) Bank loan with p artial Altum guarantee Bank long-term loan New owner or investor attraction Other sources of financing (on-line loan p latform, etc.) Factoring Figure 2 The sources of funding most frequently used by micro-eneterprises in Latvia for which both „access to finance” and „lack of innovation” had impact on the company’s growth in 2015-2017 (n=130) Source: Authors’ constructions results are included in figure 1. In order to analyze micro-enter- prises for which both access to finance and innovation are impor- tant, the answers to the question were analysed: "What types of fi- nancing does the company use or has used in the last three years (2015-2017)?" Each micro-enter- prise could indicate several sou- rces of funding (Figue 2). Surpri- E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 178 singly, informal funding has been the most popular. Only 17 micro-enterprises of this group had used public financial support (bank loans guaranteed by ALTUM, ALTUM loans, including mezzanine and EU fund-based financing). Venture capital funds and business angels, on the other hand, were not used at all. Answering the question "For what purposes has the company you represent needed new or additional financing in the last three years?" 21 % of all respondents stated that the purpose of funding was: “For the development and introduction of new products or services”. But in the group of micro-enterprises for which innovations were important it was more – 28 %. In all iso- lated groups of micro-enterprises, most relied solely on internal financing (loans from the owner, relatives, friends or related companies, proprietary investment in fixed assets, or undivided pro- fits) – results are reflected in table 2. Among the most popular sources of financing in 2015-2017 was leasing, which in terms of frequency of use competes with public financial support (bank loans guaranteed by ALTUM, ALTUM loans, including mezzanine and EU fund-based financing). Micro-enterpreises that were important to innovate had less often used bank financial products. Table 3 Distribution of micro- entereprises in Latvia depending on the attitude to apply to ALTUM for new or additional funding in the period from 2015 to 2017 Not allocated (n=1879) Accesss to finance (n=667) Innovation (n=269) Accesss to finance un inovacijas (n=130) Turned to the bank 8% 14% 6% 7% Did not turn 30% 40% 34% 42% Didn't turn, but consider doing so 11% 21% 14% 22% Hard to say 1% 1% 1% 0% No response 51% 24% 45% 29% Responses Factors essential for growth Source: Authors’ constructions Although out of the surveyed micro-enterprises 49% indicated new or additional finance needs in 2015-2017, however, only a small proportion of surveyed micro-enterprises turned to ALTUM (8 %) or at least considered doing so by 11 % (data are refected in table 3). Of those micro-enter- prises for which the access to finance was an essential factor, more companies applied to ALTUM (14 %) or considered such an option (21 %). In contrast, those for whom the lack of innovation was the main impediment to growth were less: 6 % and 14 %, respectively. Looking in more detail at the micro-enterprises group for which both access to finance and the introduction of innovations are important for growth – it was found that only 7 % approached ALTUM, but 22 % of micro-enterprises considered such an option. Table 2 Distribution of micro- enterprises in Latvia by the most frequently used sources of funding depending on the attitude towards the importance of some factor for its growth in the period from 2015 to 2017 Not allocated (n=1879) Accesss to finance (n=667) Innovation (n=269) Accesss to finance un inovacijas (n=130) Internal finance, solely 64% 57% 65% 65% Leasing 13% 15% 13% 12% Public support finance 11% 15% 12% 13% Bank finance (long-term and shor-term) 11% 14% 9% 9% Financial sources Factors Source: Authors’ constructions 179 E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 The question of why the micro-enterprises did not consider applying to ALTUM for funding was answered by 31 % of the respondents. Notably 53 % indicated that they lacked knowledge about the funding possibilities offered by ALTUM, whereas 19 % thought that ALTUM would not support their financial needs (Table 4). Representatives of other micro-enterprises groups had quite sim- ilar views. Most of the micro-enterprises that had acknowledged the lack of both financing and innovation as a significant obstacle to the growth of their company were not sufficiently informed about the ALTUM offer (60 %). In addition, 19 % of them did not believe that they have had the opportunity to finance ALTUM. Table 4 Grounds for the micro enterprises in Latvia to address their funding needs to ALTUM in the period from 2015 to 2017 Answers to the question: Why didn't the company turn to ALTUM to get the necessary financing? Not allocated (n=591) Accesss to finance (n=284) Innovation (n=101) Accesss to finance and innovation (n=58) No/insufficient knowledge about ALTUM’s offer 53% 57% 53% 60% Disbelief that ALTUM would provide for the required funding 19% 23% 20% 19% Better sources of funding available 11% 4% 10% 3% Other reasons 5% 6% 5% 7% Hard to say 12% 11% 12% 10% Source: Authors’ constructions Discussion In turn, of those micro-enterprises for which innovations are important (n=269) and which in- dicated the availability of other better sources of financing (n=10), in fact, the following sources were indicated as used in 2015-2017: retained earnings – 6, additional owner's investment in share capital – 3, loans from the owner – 8, from relatives, friends or related companies – 2, leasing – 2, factoring – 1, EU funding – 1. In contrast, from the micro-enterprises group, for which it is important to innovate and obtain financ- ing (n=130), 9 entrepreneurs applied to ALTUM to obtain it. As a result: request declined by ALTUM – 2; granted by ALTUM, but declared by ME – 2, granted by ALTUM in part – 3; granted by ALTUM in full – 2. A range of financial instruments providing for state aid have been developed in the EU to offer al- ternative financial products instead of traditional debt financing. Financial instruments are meas- ures of financial support provided on a complementary basis from the budget in order to address specific policy objectives of the EU in the form of equity or quasi-equity investments, loans or guarantees and other risk-sharing instruments (Regulation (EU, Euratom), 2018). From the 4.4 B EUR planned for entrepreneurial support in the multi-annual financial framework of 2014-2020 in the priority “Competitiveness of small and medium enterprises”, the amount allocated to Lat- via was 334.3 M euros (Ministry of Economics of the Republic of Latvia, 2019a). After deducting the share of the intermediaries, the amount available to the final beneficiaries (commercial com- panies) through difrerent financial instruments in the financial institution ALTUM and the accel- erator and venture capital funds has been 162.46 M euros. Essentially, EU grants funding in the form of state aid for every Member State on the condition that it will be solely used to target mar- ket failure. The progress report on implementation of financial programs has established that despite the measures to ensure SME access to finance in the Latvian financial market, market failure persists (Ministry of Economics of the Republic of Latvia, 2017). The report recommended maintaining ALTUM’s interventions in funding the small businesses, given the differences in the lending policies and financing conditions of ALTUM and the commercial banking sector. E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 180 In addition to public funds ALTUM attracts private resources through partnerships with a number of hedge funds. They are set up with state aide funding to support start-ups in the early stages of their business cycle or to implement new, innovative projects. The Government of Latvia has allowed the funds repaid or released within the framework of financial instruments to be re-directed to other programs. However, the use of risk and acceleration funds has not gained popularity (Ministry of Economics of the Republic of Latvia, 2019b). In turn, in their final evaluation of the contribution of EU funds for business support in the 2007-2013 programming period in Latvia, the authors (Ernst & Young Baltic, 2018) found that previous activities focused on innovation and high added value in companies were not targeted. It is recommended that support for start-ups be further implement- ed, including support for the creation of new high-growth companies and innovation activities. Latvia is one of the few countries that has developed a separate law for public support of innova- tive start-ups that might be rapidly developed to a global scale. In 2019 there were more than 400 start-ups that complied with the criteria in the legislation; however, in early 2020 only 6 of them obtained support from the state financing programme (Investment and Development Agency of Latvia, 2020). Yet, the study (GatewayBaltic, 2019) found that several start-ups were needed a loan for development but had been prevented from turning to ALTUM on account of the private guarantee requirement for securing the loan. Such requirements are, in fact, inappropriate in the initial stage of a business when the success of the business is still under question. This study on start-ups concluded that the initial goal for supporting them has become outdated. The most recent survey (ALTUM, 2020a) among more than 300 new entrepreneurs in Latvia which have started a new business or business project over the past three years established that the majority or 85 % of the entrepreneurs initially sourced it from internal funding, which is more than the share of 76 % recorded in 2017. Even though the surveyed entrepreneurs perceived ALTUM as the most popular institutional financing source, they also indicated their perception that there would be less available funds in the coming year. The EC encourages Member State governments, in collaboration with researchers, to find solu- tions to support entrepreneurship in order to overcome the COVID-19 crisis and its consequenc- es. In most EU countries, immediate government intervention is aimed at supporting the small business sector and in particular their liquidity (Mason, 2020). In Latvia, the main emphasis is on issuing short-term loans and providing loan guarantees so that banks can continue to lend to companies experiencing short-term liquidity difficulties to support suspended or restricted commercial activities (ALTUM, 2020b). Therefore, Mason (2020) calls for timely support for in- novative, high-growth and potential high-growth enterprises, given that such enterprises could provide a sustainable way out of the crisis in the medium and long term. Using examples from the UK's crisis-based public support offers for SMEs, the author recommends that innovative, high-growth enterprises develop public financial support products, involving investments of ven- ture capital funds and business angels. Conclusions The EU has developed a wide range of financial instruments that can be applied to support mi- cro-enterprises and to implement innovative initiatives, and international research confirms that they are targeted at focused support to promote both the growth or performance of an individual company and a positive contribution to the national economy. However, the availability of the public financing support to micro-enterprises in Latvia is discussible. Positive policy initiatives to support young innovative enterprises are not matched by appropriate public financial support programs. Their conditions do not meet the needs of companies. Although sufficient public fun- ding have been accumulated in Latvia for many micro-enterprises the availability of financing instruments still remain a challenge, especially for those which want to promote their growth and competitiveness through innovation. 181 E u r o p e a n I n t e g r a t i o n S t u d i e s 2 0 2 0 / 1 4 A survey of Latvian enterprises provides an overview reveals shortcomings in the supply of pub- lic funding for micro-enterprises and especially for innovation. On the other hand, the actual amount of funding required by micro-enterprises in Latvia has not been fully assessed: many micro-enterprises refrain from turning to ALTUM. Accessibility is also affected by the willingness, approach and readiness of the entrepreneurs themselves. Some recommendations are made based on the our research: _ It would be worthwhile for business policy makers to activate, stimulate risk capital support for micro-enterprises, especially start-ups, for the implementation of innovative ideas, and to create a more focused diversified funding offer with this external source. _ The founders and managers of micro-enterprises should assess their chances of obtaining fund- ing and turn to an appropriate funder. If the project contains innovative ideas, then it is recom- mended to go to venture capital or accelerator funds (which are supported by public investment). _ As financial institutions, instruments and markets have changed significantly in recent years, there is a need to raise business awareness of these changes and, in particular, of the offers of public financial support. Acknowledgements Thanks to the Marketing and Public Opinion Research Center (SKDS) for assistance in conduct- ing the survey. 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Industrial and Corporate Change, 22(6), 1453-1495. https://doi. org/10.1093/icc/dtt005 About the authors BEIZITERE ILONA Mg.oec., candidate for doctoral degree RISEBA University of Applied Sciences Fields of interests Micro-enterprise development; micro-enterprise financing, state aid for micro-enterprise. Address 3 Meza iela, Riga, LV-1048, Latvia, Phone + 37126566887. E-mail: ilona.beizitere@gmail.como.uk IEVA BRENCE Dr.sc.admin., Latvia University of Life Sciences and Technologies Fields of interests Companies financing, influence of different factors on economic development of regions. Address Liela iela 2, Jelgava, LV-3001, Latvia Phone + 37126363506. E-mail: ieva.brence3@gmail.com BIRUTA SLOKA Dr.oec. Professor, Senior Researcher University of Latvia, Faculty of Business, Management and Economics, Institute of Economic and Management Research Fields of interests Statistical analysis of different factors influencing economics and management decisions. Address Aspazijas bulv. 5, Riga, Latvia, LV-1050 Phone +37129244966 E-mail: Biruta.Sloka@lu.lv This article is an Open Access article distributed under the terms and conditions of the Creative Commons Attribution 4.0 (CC BY 4.0) License (http://creativecommons.org/licenses/by/4.0/).