Concerns for a shortage of funding for SMEs amidst a stagnated lending market are growing, despite European syndicated loan volumes running at their highest level since 2007.
Since last year the total volume of European syndicated loans has increased by 27%, reaching a total of £939bn. This is the highest level since the pre-crisis year of 2007.
However, despite the loans larger volumes, there has been a decrease in the amount of deals being made, with SMEs being particularly affected. Within a year-on-year period since last September, the total number of deals has dropped by 3% to 1,202 – equating in an average deal size of £781m.
This means that the majority of loans are being made available to Europe’s larger companies, rather than the escalating and much-in-need SME market. The cost of obtaining a credit rating for most SMEs is prohibitive, forcing them to instead turn to bank lending as a source of funding.
“The capacity of many banks to lend relatively high-risk sectors such as SMEs, and particularly to young, innovative firms, is seriously impaired by capital constraints and a strong deterioration in the quality of the assets on their balance sheets in the post-crisis period,” said the European Investment Bank.
It warned that the continued stagnation of bank lending is a cause of great concern.
It added: “If the dependence of the European firms on bank lending continues, and if the banks are unable to fully recover their capacity to provide the finance that European firms need, the result will be a further constraint to the already very weak European economic recovery.”