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The Credit Conundrum: SME Financing Gap in Europe

Duedil logoSmall- and medium-sized enterprises (SMEs) account for the majority of business activity in most countries and play a vital role in stimulating growth, innovation and competitiveness. It is therefore important to assess the degree to which SMEs are provided with adequate access to lines of credit and financing options to enable their growth and stability.

According to the Bank of England1, the stock of lending to SMEs has been contracting since late 2009, with latest figures showing negative growth once again in the three months to May 2012.

The attached report aims to provide an up-to-date estimate of the shortfall in available financing experienced by small-to-medium enterprises (SMEs) in Europe.  This so called `financing gap’ is the difference between SMEs’ required credit and that which is being utilized in practice, whether due to lack of supply or equally due to lack of demand.

The estimate of a total European SME financing gap is between £116bn and £200bn ($188bn to $324bn) a year.  More detailed cross-country comparisons are made difficult by the disparate definitions of SMEs in different countries.

In the UK alone, we estimate that between c.200,000 and 350,000 SMEs might be affected by failure to close this gap, with between 370,000 and 670,000 jobs potentially being saved and/or created if the gap were to be closed.

Some insights into strategies for bridging this gap are also discussed. These include government policies, as well as less conventional financing options such as asset-based financing and peer-to-peer lending.

To read the full report click on this link:  Duedil_The European Financing Gap_Sept2012 (2)

Source:  Dudil Ltd.  United Kingdom  https://www.duedil.com/help – A member of BIIA

BIIA Comments:  The report provides suggestions how this gap may be bridged centering on alternative finance schemes starting with private equity and non-banking solutions such as Peer-to-Peer Lending.  The report does not touch upon the role of information as an enabler to access to finance.   SME transparency is part of the issue and the inability of SMEs to provide accurate, timely and consistent documentation is one part of the problem. 
The other retarding factor is the lack of mandatory disclosure and compliance.  Regrettably the trend is going in the wrong direction.  Legislators are determined to reduce the requirements to disclose financials and information by SMEs and information on directors in an apparent effort to reduce the reporting requirements for SMEs.  The unintended consequences are a lack of transparency preventing efficient risk assessment and reluctance of lenders to provide access to finance.

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