SME entrepreneurs are finding it increasingly difficult to get credit from the bank. Four finance specialists on the shift to non-bank solutions and the importance of expert people to properly assess a financing request. "The solution is a combination of tech and touch.
It used to be simple: if you needed money as an entrepreneur for an acquisition, growth financing or an investment, you knocked on the door of your house bank. That obviousness is gone. Since the 2008 financial crisis, banks are increasingly withdrawing as financiers of SMEs. The volume of outstanding bank credit to SMEs has fallen sharply since then.
Fortunately, entrepreneurs no longer rely solely on banks. Non-bank forms of financing are on the rise. According to figures from the SME Financing Foundation, one in five loans up to €250,000 are arranged outside the bank. For loans up to €1 million, the figure is one in ten. And the number of SME entrepreneurs using non-bank lending arrangements is rising year on year. In 2020 there were 38,500, in 2021 44,000 and in 2022 55,000. The total value of non-bank loans was €4 billion in 2022, an increase of 22 percent over the previous year.
Will this development continue in the coming years? And what does that mean for entrepreneurs? We talk about these and other questions surrounding SME financing with four experts who together represent an important part of the market for non-bank financing.
Financing Solution
Carlo van der Weg has been a spider in the web in the world of corporate finance for SMEs with Credion for 24 years. As a consulting organization, Credion works with many different parties in finding a solution to the credit needs of entrepreneurs. This year 40 percent of the expected € 1.7 billion in financing in which Credion advises comes from alternative financiers; funds, leasing companies or crowdfunders.
Recently, Credion's focus has been on internationalization and continued technology development, Van der Weg says. A franchise is being rolled out in Belgium and an online portal is being built where entrepreneurs with a financing question can register.
Van der Weg: "There are so many providers that entrepreneurs sometimes can no longer see the wood for the trees. Too often they are tempted to take out a short-term loan on terms that are not advantageous. For that reason, it is important that there is more transparency in the market. If an entrepreneur wants to know on Sunday afternoon whether he is creditworthy, we want to be able to give him that information right away. Then we guide him to the financing solution and the provider that best suits him.'
Crowdfunding
One of the fastest growing alternative forms of financing is crowdfunding. In 2022, a record €1.08 billion was raised via crowdfunding in the Netherlands, a growth of 48 percent compared to the previous year. Collin Crowdfund has been active since 2014 and, with over 40,000 investors, is the largest crowdfunding platform for SMEs. Although entrepreneurs can apply directly to Collin Crowdfund, 90 percent of applications come through intermediaries, according to Bas Denissen.
'We are not the trusted advisor, but we do have a product that fits the financing solution that a trusted advisor wants to offer entrepreneurs, precisely when 100 percent bank financing is not an option. We differentiate ourselves by providing an answer to the question, How can it be done? Often crowdfunding does not solve the entire financing question, but is part of a mix with other (alternative) loan forms.'
Collateral or no collateral
Like Collin Crowdfund, Beequip has also jumped into the gap created by banks. 'We saw entrepreneurs running into a wall at banks, especially when it comes to start-ups needing financing for, say, an excavator or a company car,' Robert Durieux says. 'A banker flips open the annual figures, we the hood to look at the collateral. That gives a very different view of what you can finance. With us, the iron goes above the numbers.'
Beequip provides around €800 million in financing every year. For a large part in the form of sale & lease back constructions, says Durieux. 'If you want to take over your neighbor and you have two cranes, you can sell one to us and then lease it back. That's how we help make mergers and acquisitions possible.
If there is no collateral in the form of equipment, but there is a healthy cash flow, WDL Kredietfondsen can offer a solution. WDL, described by chief executive officer Bart van der Wielen as the "new kid on the block," provides financing to SMEs with money from investors. Soon WDL will launch a new SME Fund, half of which will be filled by government agencies Invest-NL and European Investment Fund (EIF).
This fund also strengthens 'blank' financings from €250,000 to €2.5 million, based on cash flow. 'In that segment there are few options now,' says Van der Wielen. 'That is also the reason for the involvement of Invest-NL and EIF, they see that this market segment is poorly served.'
