Is it possible for an SME that was using the FC cost model in FP6 to switch to a flat rate for FP7?

Any Organisation has the option to go for the 20% flat-rate in FP7.

One of the criteria for the 60% transition flat rate is that the Organisation is unable to allocate indirect costs per project.

The SME in the question was able to do this in FP6 and would have to demonstrate to the Commission that they were now unable to do it – this is unlikely.