SMEs find it hard to obtain feedback on their loan applications
17 Apr 2014 04:40 PM
A new evaluation published last week confirms
that the smaller a firm, the larger the likelihood that its credit application
might be declined by a financial institution. In particular, smaller companies
are struggling to obtain feedback from banks on their declined credit
applications even if they have the right to ask for it. To help them eventually
to obtain loans successfully, smaller firms need to receive and act on feedback
about areas in which their loan application was lacking. Research results
indicate that clear benefits would derive for SMEs from obtaining such
feedback: about half of SME respondents to the survey found the feedback
received by banks useful as regards obtaining future
funding. Therefore the evaluation recommends reviving the dialogue
between banks and SMEs, by increasing transparency and making efforts to
improve financial literacy in smaller companies. As small and medium
sized enterprises (SMEs) are an engine of growth in the EU economy, access to
credit is crucial both to their survival and that of our
economy.
European Commission Vice-President Antonio Tajani,
Commissioner for Industry and Entrepreneurship commented: "The
financial crisis has affected the ability of the financial sector to channel
funds to the real economy. SMEs in particular are key contributors to
sustainable growth. However they are still finding it challenging to obtain
financing. The evaluation published today highlights that receiving clear
feedback from banks on loan applications is crucial for SMEs. Therefore it is
essential to revive the dialogue between banks and
SMEs.”
Recommendations of the evaluation
Research results indicate that SMEs would derive clear
benefits from obtaining feedback on their loan applications: about half of SME
respondents to a survey found the feedback received by banks useful as regards
obtaining future funding.
But
it is exactly at the smaller end of the market where there may be issues in
obtaining feedback, where SMEs are often scored by the banks using large data
pools and the economics of the situation sometimes do not support detailed and
intense discussions between bank officials and SME
representatives.
To
tackle the issues reported in the findings, the evaluation recommends the
revival of dialogue on transparency between banks and representatives of SMEs,
to raise awareness of enterprises as regards their rights to obtain feedback
and to develop an agreed standard of feedback to SMEs.
Next steps
To present the results of the evaluation and
discuss its recommendations with stakeholders, the dialogue between banks and
SMEs will be reanimated in the course of 2014. The aim is to improve
transparency between banks and SMEs, encourage banks to find ways to improve
the feedback they give to SMEs and raise awareness on the relevance of such a
feedback on loan applications.
Background
According to article 145(4) of the EU Capital
Requirements Directive1, SMEs have the right to ask for
feedback in writing when they apply for a bank credit. However, the evaluation
suggests that very little has been done in practice to actually implement it:
SMEs and banks are rarely aware of its existence.
The
initiative to revive the dialogue between banks and SMEs is one of
the actions aimed at improving SME access to finance included in the latest
Communication on Long-Term Financing of the European Economy,which was released
in March 2014.
More information available at:
Press release on Long-Term Financing of the European
Economy
Communication on
Long-Term Financing of the European Economy COM(2014) 168 final,
27/3/2014
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