Loan approvals to small and medium-sized enterprises are increasing

By Leonidas Stergiou

Barriers to financing may have narrowed and available lending may have increased, but the funding gap for Greek small and medium-sized enterprises has widened, following the pandemic’s full opening up of the economy.

This conclusion is drawn from the pan-European SAFE survey conducted every six months by the ECB and the Commission. The data were published yesterday and include the financing conditions of the companies, according to the answers given by the small and medium enterprises themselves from each country from October 2021 to March 2022.

In Greece, during the second half of 2021, a sharp increase in the approval rate to 60% from 40% was observed for the first time. Despite this development, the approval rate of Greek banks is still lower than the European Union average (80%).

Impressive is the fact that despite the increase in approvals, the remaining percentage, which includes rejections and encouragement to apply, has remained stable as a whole. According to bank executives, the increase in approvals for financing to small and medium-sized enterprises is largely due to the availability of many co-financed and guaranteed loans. On the other hand, the rejection rate remained stable at around 10%, while the remaining 30% includes cases where they either did not need a loan or did not want to. A significant percentage in the latter group belongs to the category of entrepreneurs who feared that their application would have a negative outcome or did not accept the high cost of borrowing.

According to the SAFE report, the percentage of companies that avoided borrowing, due to higher interest rates and fears of further increases in the future, increased significantly. Also, for the first time, a relevant question was added about inflation, raw material costs, prices and profit margin. This is another factor that discouraged businesses from applying for new bank lending. According to the report, this phenomenon was particularly evident in large economies such as Germany.

The financing needs of companies across Europe increased in the second half of 2021, when there was a shift from government support measures to bank lending. Greek companies responded that available government funding had been significantly reduced compared to the first half of 2021. The funding gap widened significantly as corporate needs for liquidity outweighed banks’ willingness to lend. This was observed pan-European, but to a much lesser extent (about eight times less) compared to Greece. In general, in the EU the lack of need for funding in the first half turned into demand, which was almost covered.