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Access to finance for businesses within the Eurozone during 2021

VP Law Firm • jan 28, 2022

Access to finance for businesses within the Eurozone during 2021

In November 2021, the European Central Bank (ECB) published its 25th Annual Report on Access to Finance for the Eurozone (SAFE). The analysis was conducted between September 6th and October 15th, and covers the period between April and September 2021. The sample included 10,493 companies in the Eurozone, of which 91% had less than 250 employees. The report points to changes in the company’s financial situation, as well as increasing availability and the need for external financing. Developments at the Eurozone level and in individual countries were examined, and the results reflect micro, small and medium-sized enterprises (SMEs), as well as large firms.

It turned out that the main concern of companies of all sizes in the Eurozone is the lack of skilled labor, which directly affects their business activity, and all this is accompanied by difficult access to consumers. Maintainable economic activity of SMEs recorded a 15% increase in turnover (an increase from -29% to -14% was recorded) while on the other hand, they continued to record a decline in profits, with significant progress compared to the previous report (-6 % compared to 35%). The decline in profits is due to an increase in other costs such as material, energy and labor costs.

Economic recovery is present in all companies, while the impression is that larger companies have progressed at a rapid pace. Compared to the previous survey, large companies reported turnover growth (41%), but also profit growth (20%).

Eurozone companies reported a moderate increase of demand for bank loans and credit lines, which is significantly lower than in the previous period. About 2% of SMEs reported higher demand for bank loans (down 12%) and 4% increased demand for credit lines (down 10%). External and internal financing is mainly focused on fixed investments, inventories and working capital, while about 20% of SMEs used such financing for hiring and training new employees, as well as for developing and launching new products. Large companies used bank loans due to the need for fixed investments. Overall, companies of all sizes, with exceptional medium-sized firms, indicated a return to the level of availability of bank loans before the COVID-19 pandemic.

External financing of SMEs has returned to a negative territory, as was the case before the pandemic, both at the Eurozone level (-2%, down from 4%) and in most EU member states. Eurozone SMEs were of the opinion that the macroeconomic environment no longer affects the availability of external financing, while large companies believe that such an environment has a strong impact on their access to external financing.

The survey showed that a higher percentage of SMEs noticed an improvement in banks’ willingness to lend (11%). In addition, Eurozone companies no longer see the general economic outlook as an obstacle to their access to finance. Public financial support was taken as a contributing factor to access to finance, with a higher percentage among micro and small enterprises. Large companies reported easier access to finance than SMEs. About 42% of large firms applied for a loan, with a higher success rate than SMEs (85%) and a lower rejection rate (2%). According to the results of the research, the average interest rate charged to large companies on the credit line was about 129 basis points lower than the one paid by SMEs, with a slight increase in the range compared to the previous survey.

Overall, the survey results show that the recovery in economic activity has been favorable for Eurozone SMEs, which is reflected in a widespread increase in turnover. Conditions for access to finance have improved, and the availability of external finance is considered to be in greater demand. SMEs expect the availability of most external sources of funding to improve to levels similar to those prevailing before the pandemic in the coming months.