However, economic downturns can have a detrimental effect on the creation of new, innovative businesses when access to financing dries up. The key role of finance in the development of small and medium-sized enterprises (SMEs) is illustrated by Finland (Figure 3) where the peak in financial constraints coincided closely with the deep recession of the early 1990s and a downturn in self- employed. Economic growth suffers doubly in the long term since innovative new firms exert competitive pressure on established firms pushing them to innovate. Barriers to entry are higher during downturns: studies for the United States, for example, show that.
