SMEs brace for a “significant deterioration” in credit in 2023

Interest rate hikes are starting to make not only mortgages more expensive, but also business loans. The Bank of Spain has just verified the first problems for SMEs in accessing finance since 2013 and warns that these companies expect a “significant intensification of the deterioration” of loans in the first quarter of 2023.

Interest rates are already at 2.5% and the ECB has announced further hikes. The effect of the increases in the price of money that began in July was, according to the latest data available, a Euribor higher than 3% on the monthly average and rates on loans to companies at 3.09%. The latter percentage corresponds to November and is offered by the Bank of Spain itself.

SMEs have already experienced a worsening of their situation and, at the end of September, the percentage of those reporting difficulties increased by eleven points, according to the survey carried out by the Bank of Spain and the accompanying analysis, carried out by i researchers Álvaro Menéndez and Maristela Mulino.

The deterioration has not been as pronounced as expected and is occurring across Europe

Bank loans are the main source of financing for SMEs, which have at least two reasons for consolation: the worsening of conditions until September has not been as marked as expected and affects the whole of Europe, so they do not lose competitiveness at least in the continent .

In Spain, the deterioration in the ability of small and medium-sized enterprises to access external finance is the first since 2013, while in the euro area as a whole, access to bank loans has worsened for the first time since 2014. However, The evolution for the moment is far from what happened at the beginning of the financial crisis of 2008, underlines the report of the Bank of Spain.

This quarter, companies speak of a “significant deterioration”

The forecast for SMEs up to March 2023 now consists of “a notable intensification of the deterioration in access to finance”, which is not due to specific company circumstances, but to the “worsening of the general economic outlook”.

The percentage of PMIs reporting an increase in interest rates and the cost of accessing new debt stood at 70% at the end of September, which is the highest increase since the Bank of Spain conducted this survey. The percentage is higher than in the euro area, where it stood at 64%. SMEs also appreciate an increase in the guarantees required by banks and lenders.

10% have financing difficulties, compared to 20% in the 2008 crisis

The percentage of SMEs that had difficulty obtaining bank loans rose to almost 10% in September, one and a half points more than six months earlier, even if this indicator is at low levels, especially when compared with what happened in crisis when it reached over 20%.

The increase in difficulties in obtaining finance is mainly due to an increase in rejected applications and, to a lesser extent, to an increase in the percentage of SMEs that have granted only a part of the requested financing.

Less demand for loans

There has also been a “slight drop” in the demand for loans because in some cases the SMEs themselves refuse to apply for loans pending rejection. The ECB survey also shows that the percentage of SMEs applying for bank credit between April and September 2022 remained at relatively low levels, at 21%.

Financing is not for now the main concern of SMEs, who continue to identify the increase in production costs as the main problem in Spain. In the euro area, they allude to other problems such as a shortage of qualified personnel.