SMEs turn to alternatives as Basel IV accelerates bank retrenchment
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SMEs turn to alternatives as Basel IV accelerates bank retrenchment

It took five years for the invoice finance specialist Accelerated Payments to advance its first €1 billion, but just nine months for the next €500 million.

Illustration: iStock

Banks in both the US and Europe have been tightening lending standards and reining in credit available to corporations of all sizes in 2023.

That is always a particular problem for small and medium-size enterprises.

Banks love to paint themselves as great supporters of small business, but in truth they are built to make larger term loans to big corporations that also buy other financial services.

Short-term credit to small companies is expensive to underwrite and administer and has never been a driver of bank profits.

Now, the prospect of higher regulatory capital requirements against unsecured exposure to unrated or below investment-grade SMEs under Basel IV and the likelihood of rising default rates are cutting risk appetite even further.

Overdrafts, once a mainstay of banking SMEs, are disappearing from the product offering at many banks because they have a 100% risk capital weighting.

So, while capital raising for many growth companies remains difficult, fintechs and challenger banks focused on SMEs sense an opportunity right now.

In September, Fleximize, a digital lender to UK SMEs, secured another £136 million in funding from Goldman Sachs Asset Management and Citi, which the company will use to redeem existing debt, expand lending and accelerate growth.


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