Why Germany SMEs Are Turning To Private Debt Funds for Financing
German SMEs have been experiencing significant difficulties in obtaining funding, leading many to seek financing from private debt funds instead. Come check out our blog to learn more.
The German "Mittelstand," or small and medium-sized enterprises (SMEs), is the backbone of the German economy. However, they have been facing a major issue: obtaining funding is becoming increasingly difficult.
Regulations and Cost Pressure
Regulations make it much more difficult for banks to provide loans. The Basel rules force banks to underwrite loans with more equity, which increases the cost of equity for SME loans. Today, in many banks, the cost of equity is higher than the cost of capital of SME loans. That means banks only benefit from SME loans if they can cross-sell other products such as insurance or other financing options.
Another problem for banks is the low-interest-rate environment that generally weighs on banks' profitability. Add on top manual processes and a lack of automation, and it is even more cumbersome for German banks to process SME loans.
Flexibility
These issues often result in long waiting times and cumbersome processes for SMEs when applying for bank loans in Germany. As a result, they have recently started to turn to private debt funds instead of traditional banks.
Private debt funds are private lenders investing money on behalf of institutional investors. For these investors, the stable returns provided by Germany's strong SMEs are a welcome diversification for their portfolios. On the other hand, SMEs can benefit from their more flexible financing terms. Banks are usually bound by bureaucratic procedures and can thus provide financing less quickly.
The increased flexibility of private lenders also means that SMEs that are unlikely to get a bank loan may receive a loan from a private debt fund. Banks, for example, exclude certain industries from their lending because of regulatory concerns, but private debt funds are usually much more flexible.
It is easy to see why private debt has recently gained popularity among German SMEs. This pattern is likely to continue.
Leverage Export Portal to Achieve Success
Export Portal is dedicated to providing our users with a safe space to complete global trade transactions, along with all the information they need to trade confidently. We help SMEs find new markets, secure new deals, and grow quickly and stably. Check out our site today and gain access to all our benefits!
Comments 0