Public sector urged to step up funding help for small firms

Europe’s small and medium businesses have seen their cash flow dry up since the recession, a study said today. Banks are reducing lending and private investors are reluctant to step in, it found.

The report, by the Association For Financial Markets in Europe and consultants Oliver Wyman, called for the public sector to do more to help SMEs, with policies to encourage private investors such as insurance companies and asset managers to invest in businesses.

Methods suggested include promoting private placements, where debt is sold directly to large investors without a market auction, and securitisation, where loans are bundled and sold on to outside investors. 

Both these methods are common in the US but less so in Europe. The AFME said the measures were necessary to get private investors lending to SMEs.

The report said: “The majority of non-bank investors interviewed did not have appetite to lend directly to SMEs as it did not fit with their business models.

“Solutions therefore focus on selectively increasing public-sector support where banks do not have the capacity or risk appetite to lend.”

The AFME, which also called on the European Investment Bank to provide more support, plans to present its report to Europe’s policymakers in the coming months. The study looked at 75 representative businesses across Europe, industry groups and AFME members.