Financing patterns of R&D in small and medium-sized enterprises and the perception of innovation barriers in Germany

We analyze the role public support plays in small and medium-sized enterprises (SMEs) R&D financing as well as these firms’ assessments of financing conditions in the context of other framework conditions for innovation. Using the sample of 2,708 German SMEs that participated in public R&D promotion programs during 2005–10, we identify four unique types of R&D financing. Firms are generally positive about public financing of R&D in Germany, although a group of R&D companies without a track record that wish to introduce an innovation to the market find it difficult to procure a loan. SMEs perceive obstacles to innovation primarily in the non-financial sphere, namely, the supply of skilled personnel, market regulation, and competition conditions. Therefore, future work on innovation policies for SMEs should place greater emphasis on the non-financial external framework conditions for firm R&D and innovative activity.