That everything in the economic and financial world of The Netherlands is not fair and square yet after ‘the end of the credit crisis’, can be concluded from the following article, concerning start-ups in small and medium enterprises: financing of start-ups encounters structural problems (http://www.fd.nl/; link in Dutch). I show here a large part of this article, as it is only available in Dutch.
There are ‘structural frictions’ in the financing process of small-and-medium-enterprises (SME); especially the smaller companies, that have The Netherlands as their target markets and young and fast growing companies.
That is stated by an expert group, chaired by former ABN Amro banker Tom de Swaan. The commission executed an investigation into the availability of credit for SME, assigned by Minister Maxime Verhagen of Economic Affairs, Agriculture and Innovation.
The expert group states in its recommendations, to seriously investigate alternative sources of financing. The group thinks of the possibility of setting up an informal exchange for SME companies as a preliminary stage for an IPO. Another option is to revive the market for private loans.
Since the beginning of the credit crisis, there are many complaints on the willingness of banks to hand-out credit. Especially fast-growing companies have fears of being hindered in their developments, in case of an economic recovery.
On their turn, banks state that there is a diminishing demand for credit from small business. On top of that, the risk-premium has increased since the supervisors of the banking world set more robust capital demands (Basel II + III – EL) for the banks. Besides that, small business, targeted at the Netherlands, is less attractive than business aimed at export of goods and services.
For a lot of SME companies, banker’s credit is the only source of financing, besides getting supplier’s credit. This restricts the possibility of choice and might restrain that entrepreneur’s initiative is aborted. Especially now banks are bound to stricter rules of credit supply.
The expert Group sees diversification of financing sources as paramount for starting and fast-growing business. The commission urges the government to maintain existing forms of government stimulus for these companies.
De Swaan and his colleagues also point at private sources of financing, like private equity, informal investors and wealthy private citizens or families. The last group are considered important suppliers of capital with a long investment horizon.
I have mixed feelings about news items like this. It is a fact that at the dawn of the credit crisis, banks were often too easy with lending money to everybody and their sister, triggered by the hunt for more returns. The demand for solid collateral, thorough business plans and warranties in those days was submissive to ROI and shareholder value, causing banks to take excess risk. That was especially the case in the USA, but also – on a smaller scale – in Europe and The Netherlands.
So for me, it is a good thing that banks take less risk and make it harder for small companies to get a banker’s loan. If your company doesn’t have solid collateral, or at least a solid business plan and a number of references, you don’t deserve it to receive ten thousands of euro’s in loans and credit lines.
However, it is also true that banks nowadays are sometimes too careful. Private equity or private moneylenders then can be a blessing in disguise: for a risk-premium of a few percents on the market interest or in exchange for a part of the shares, they can enable new or fast-growing companies to start new / extra investments.
These investors (especially private investors or families) have another big advantage: they have often years of experience and often know the pitfalls of starting-up a new business. Herewith they can supply very good advice for free, that otherwise should have been paid dearly, would it come from an investment bank.
But my final conclusion is, that it is not desirable to return to the days of ‘kamikaze’ investments and loans without collateral that we have left past us in 2008. Prudence is the mother of wisdom: as well for banks, as for private investors.
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