Changes in regulations across the EU will create new problems on small and medium-sized enterprises (SMEs) in an already difficult lending environment. These changes, set to take effect by 2022, will increase funding costs for banks and will thus make loans subject to increased scrutiny. This, in turn, means fewer loans will be issued to SMEs – especially those whose creditworthiness is considered substandard. Moreover, to make a difficult situation worse, this same funding cost increase will also make financing from banks more expensive.
Cash flow is already a significant problem for SMEs across Europe. According to a recent survey conducted by the European Central Bank (ECB), roughly 1 in 10 SMEs struggle to secure financing. This same survey revealed how dependent SMEs are on banks: approximately 70% of SMEs rely on bank loans to finance their business, foreshadowing what a massive problem this will prove to be for smaller enterprises across Europe.
Given the critical situation that many SMEs will soon face, it’s clear that alternative sources of financing are needed as banks will no longer be an option for many small businesses. The fintech company Factris has taken note of this and is readying themselves to help finance SMEs.
“Banks can be a nightmare for SMEs,” says Brian Reaves, CEO of Factris. “It has always been hard to secure a loan if you’re a small business. These new regulation changes will only make it more important for SMEs to avail themselves of alternative financing options available to keep their business going. Alternative options like factoring will prove to be a lifesaver for many SMEs.”
Factoring is a financing method offered by Factris where unpaid invoices are purchased in order to provide capital to SMEs for a small fee.
Continues Reaves, “We’re happy to be part of the solution to the problems posed by banks that are unable to help small businesses.”