Corporate risk can be divided into 3 categories, as shown in the graph below:

Market risk is a consequence of volatility in financial markets, and includes interest rates risk, foreign exchange risk, commodity price risk and eventual pension fund shortfalls.
SMEs are intrinsically riskier borrowers than large firms, because they are more vulnerable to market changes. As already said, financing its operations is the most difficult and expensive task for SME management. As a consequence of adverse selection, smaller companies borrow at higher rates, and inflation and interest rates volatility affects them significantly. For SMEs that are trying to grow and become international, additional difficulty is represented by foreign exchange risk. SMEs usually use financial services and products less than large enterprises, mostly due to unavailability and higher costs. For example, when it comes to financing, large companies can issue a bond, while smaller ones don’t have that privilege. Also, smaller companies use less financial instrument, mostly because of lack of know-how (they often cannot afford to have expert for financial risk management, for example).

Commercial risk arises as a consequence of firm’s everyday operations. It includes risk of loss resulting from inadequate or failed internal processes, people and systems, and actions of competitors.
Characteristics of SMEs make it most vulnerable to commercial risk. Because of their small size, SMEs often don’t have adequate management and workforce. It creates further problems in managing internal processes, leads to mistakes, frauds and corruption. Another difficulty for SMEs is lack or inefficient use of advanced IT systems, a consequence of lack of field expertise. Moreover, SMEs are very sensitive to competitors’ actions, particularly those of large companies. Namely, large companies benefit of economies of scale (and thus have lower costs) and higher product differentiation, which might be detrimental to smaller firms.

External event risk includes non-market events, such as natural catastrophes, changes in tax policies or regulations.
External event risks, if probable, can have huge impact on SMEs. While large companies often have catastrophe funds and insurance, those options are usually not available for SMEs. SMEs use to a large extent insurance against theft, fire etc. but as a consequence of adverse selection and moral hazard, those protection instruments are more expensive. Another risk that is not manageable for SMEs relates to tax and other regulations. While some large multinationals have lobbying teams which try to influence governments’ regulations, SMEs don’t have that luxury. Moreover, large companies can always move production or headquarters to another country, while SMEs are mostly local and unable to move, thus completely dependent on whatever happens in their regions. Smaller companies are less able than large ones to change and adapt to a new regulatory (and any other) environment, mostly due to lack of know-how and flexibility.

As already said, SMEs face different types of risk compared to large companies. As a consequence, they need different types of financial services and products. To begin with, SMEs need advisory services in order to cope with risks they are facing. Advisory is needed in all fields, starting from operational activities (to compensate for inadequate management), to fiscal and financial help. Then, according to type and goals of the company, they need more financing options, insurance and products to protect them from market risks. Recently, environmental sustainability is becoming more important to SMEs, which further emphasizes need for specific instruments respecting their size.