Recent research published by credit insurer, Euler Hermes shows that The Netherlands is the country in Europe where SMEs have the biggest problem finding finance for their business.
The benchmark used to research this this was the gross domestic product (GDP) at market prices. The GDP is the total monetary value of all finished products and services produced in a country within a certain period of time (usually one year). It was calculated that the Netherland’s funding gap has now risen to 22% of our GDP, a statistic that unfortunately puts us at the top of the leader board in Europe, followed by Belgium (14%) and France (9%). It is clear that this figure indicates that our economic growth is being restricted because of this.
Why is it that Dutch SMEs are having so much problem finding finance? The main reason is that in the Netherlands we have very little choice when it comes to finance: a huge share of credit provision (90%!) is done by just a few major banks.
The Netherlands is also lagging behind when it comes to alternative methods of finance, such as leasing, factoring, crowdfunding, Qredits, credit unions and finance using crypto coins.
The research published by Euler Hermes has also been confirmed by a recent survey of more than 1000 Dutch SMEs that was done by October, the SME finance platform. In this survey 48% of the companies surveyed indicated that they have problems obtaining finance and that these funding gaps have a negative influence on their business.
The results of October’s survey do not only show that the shortage of funding is the biggest in the Construction (60%) and the Retail sectors (54%), but also that the geographic location of a company can have an effect. 33% of companies in the south of the country confirmed that they had problems raising enough capital. In the west of the country this was just 29% and the east comes in at 3rd place with 25%. The easiest place to find finance is in the north of the country: there ‘just’ 22% of the companies surveyed indicated that they have trouble finding suitable finance.
Another notable result from October’s survey is the fact that in 2018 almost 50% more capital was raised by using crowdfunding than the year before. In 2018 this amount was € 329 million. But the results of the survey also show that entrepreneurs from the following branches (still) find this alternative form of finance too unreliable: Transport and Logistics (70%); Construction (66%) and Retail (59%). So this is an area where there are still plenty of opportunities.
Going back to the Eurozone as a whole, luckily we can conclude that in the last few years, a lot has improved for SMEs. In 2015 the finance gap was 6% of GDP; in 2019 the gap has reduced to 3%. But we are still lagging behind the US’s finance gap, which currently stands at just 2%.
Reasons for this halving of the finance gap in Europe over the last four years include the European Central Bank’s broader policy of buying up existing loans thereby giving banks more room to extend new credit, and also the arrival of more non-bank finance providers. There was also a significant reduction in the credit demand in Spain and Italy. Plus the fact that SMEs are now in a better state to finance new projects from their own cash flow, thanks to the general improvement in the economy.
But no matter how you look at it: the SME sector forms the economic backbone of the European economy – SME companies account for almost 70% of total employment in the non-financial sector and thereby generates almost 60% of total VAT.
The way to find suitable finance is often very difficult for an entrepreneur. Luckily we have good advisors who can point them in the right direction. Would you like to know more about all the different alternatives? At Togather, we would be very happy to put you in touch with a suitable partner or to provide you with information about our own services.