Loans continue to be the most important financing instrument for companies. However, both SMEs and large companies have found in recent months that banks are very cautious in this regard. Why is that?
The financing situation of many companies is anything but simple. High costs put a strain on liquidity, the pressure to innovate is increasing and digital transformation involves high investments. At the same time, personnel costs are rising due to the growing shortage of skilled workers. If the capital generated is not sufficient to provide the required funds, the company either needs external capital – or has to put important investments on hold.
The classic bank loan is still a proven means of obtaining the necessary financing for many companies. However, the analysis
KfW-ifo credit hurdle reveals that credit negotiations are becoming increasingly difficult.
Interest in loans increases
How many companies actually apply for a loan depends heavily on their willingness to invest. Economic developments in Germany have a significant impact on this. Another crucial question is: will the company actually get the loan it needs on attractive terms?
In spring 2024, more companies requested loans than in the previous quarter:
- One in five SMEs surveyed (21.2 percent) negotiated a loan with a bank.
- Large companies showed significantly more interest in a loan: 32.9 percent entered into negotiations with their bank.
Banks tighten lending rules
However, in the loan negotiations, many companies discovered that banks were applying strict standards. The analysis shows that credit hurdles for companies tightened in the second quarter of 2024.
- Among SMEs, the proportion of those who rate the banks’ behavior as restrictive rose to 27.8 percent. This means that more than one in four SMEs noticed more stringent conditions in credit negotiations.
- It was not only SMEs that encountered difficulties: 25.9 percent of large companies also found it more difficult to access credit. This is a new record high.
Why are banks so cautious in loan negotiations? According to KfW, this is mainly due to the stagnating economic recovery. A weak economic environment therefore has a negative impact on development prospects and thus on the creditworthiness of companies. The better the economy recovers overall, the better the credit conditions will be.
Improve creditworthiness
What follows from this result? Credit conditions are not easy at the moment – both for SMEs and large companies. But companies should not sit idly by and wait for economic developments. External capital, which is urgently needed to remain competitive, should be obtained on the best possible terms. And here companies can certainly proactively improve their own situation, for example by taking the following measures
- Finances can be strengthened with effective cash management: payment transactions should be monitored and controlled in real time if possible.
- Clear and detailed financial reports on the current economic situation create transparency and trust.
- Financing alternatives, such as leasing, can be an attractive option if access to credit is difficult.
About the KfW-ifo credit hurdle
The credit hurdle is determined quarterly by ifo business surveys and shows the proportion of companies that classify the banks’ behavior in credit negotiations as “restrictive.” The survey only includes companies that have conducted credit negotiations in the last three months and serves as an indicator of changes in credit demand. Around 9,000 companies, including around 7,500 medium-sized companies from various economic sectors, are surveyed according to size and sector.
