The level of new loans for SMEs is 3% lower than before the pandemic, putting their liquidity at risk
The new crisis scenario caused by the war in Ukraine and high inflation is already taking its toll on Spanish companies, especially small and medium-sized companies, when they had not yet recovered from the impact of the pandemic. One of the immediate consequences they are already blaming is that they are already starting to experience the credit tightening brought about by the change in the ECB’s monetary policy, as Cepyme, the sector’s employers’ association, warned in a statement.
For example, the conditions for access to finance for companies have been tightened. Financial institutions are showing a lower risk tolerance due to economic uncertainty, according to the Bank of Spain survey of bank loans. And on the other hand, credit levels remain below pre-crisis levels at a time when the lack of liquidity in companies and rising inflation are exacerbating. In fact, the price increase has an impact on financing, reducing the volume of credit for the sale of small businesses. In the third quarter of 2022, they managed to obtain credit for only 16% of their turnover, while before the crisis an average of 22.4% of their turnover was obtained from financing.
Inflation means that the same amount of allocated euros is used to finance a smaller portion of the turnover and this affects the liquidity needs of companies.
The credit tightening is observed in the new loans granted in the third quarter of 2022. Despite a significant increase in activity in 2022, new business financing operations following the coronavirus crisis remain below pre-crisis levels. Small businesses are absorbing 3% less credit volume compared to the years leading up to the pandemic (2017-2019) and the average loan is 33,600 euros, compared to the more than 34,600 euros on average committed before the covid. And medium-sized companies follow a similar trend, registering 4% fewer new loans than in the indicated period.
Far from improving, however, Cepyme warns that the credit contraction will continue into the latter part of the year and become more urgent if the ECB continues its contracting policy and if economic activity continues to slow. The ECB’s tightening of monetary policy, a lower risk tolerance of financial entities and the deterioration of many companies’ balance sheets and thus of their guarantees are the main causes of the credit constraint on SMEs. Added to this is the high uncertainty in the economy and the slowdown in the activity forecast for the last quarter of the year and the beginning of 2023, which also makes lending difficult.
Since small and medium-sized enterprises are almost exclusively financed through the banking system, this restriction is proportionally more intense for these smaller enterprises and jeopardizes their liquidity.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
