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    ECB Examines Impact of COVID-19 on Access to Finance of Enterprises

    June 18, 2020

    ECB, in the fourth issue of its Economic Bulletin, published an article that provides an overview of the changes in the financing conditions experienced by small and medium-size enterprises (SMEs) over the last ten years. An accompanying box in this issue of the Economic Bulletin presents evidence on the impact of the COVID-19 crisis among SMEs based on the results of the 22nd round of the survey on the access to finance of enterprises (SAFE); the survey was conducted during March and April 2020. The outbreak of the recent pandemic raised some new, severe, and immediate challenges for SMEs in terms of their access to financing.

    The article mentions that SAFE, which has been conducted on behalf of ECB and EC since 2009, reveals significant shifts in firms’ financing conditions since the start of the global financial crisis. During the financial crisis and the subsequent euro area sovereign debt crisis, a substantial share of SMEs highlighted access to finance as one of the most pressing problems affecting their business activity. The article provides both a taxonomy of SMEs’ financing patterns based on a cluster analysis—before the onset of the pandemic crisis—and some evidence on the implications for firms’ investment decisions. For example, SMEs tend to be in the clusters where flexible short-term debt or long-term bank loans are the main financing instruments. Also, a combination of leasing or factoring and short-term loans was of particular importance for SMEs (compared with larger firms).

    The box on the impact of COVID-19 pandemic on the SMEs highlights that, with respect to the internal financing sources, SMEs reported a substantial net decline in the expected availability of funds (-17%, from 12%). This is likely to reflect anticipated headwinds for economic activity, which has major implications for the profitability of firms. With the exception of the Netherlands, the deterioration is widespread across countries, with the highest percentages recorded in Portugal (-‍26%), France (-23%), and Italy (-21%). Expected availability of external financing sources registered a deterioration, although less than that of internal financing. Euro area SMEs reported net declines (-11%) for bank-related products, namely bank loans, credit lines, and bank overdrafts.

    The relatively smaller deterioration compared to internal funds may reflect the positive effects of accommodative monetary policy measures and of the various government programs that have been announced since the start of the pandemic. As for trade credit, SMEs on balance expect a significant reduction (-20%), which may point to the expected interruptions of regular business operations, in turn affecting relations between firms. The strongest declines in the expected availability of external financing were reported among SMEs from Spain, Italy, Portugal, and Slovakia. The decline in future access to bank loans was still more limited than in 2012, when a net 15% of SMEs reported a deterioration in expected availability. 

     

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    Keywords: Europe, EU, Banking, COVID-19, SME, Economic Bulletin, Credit Risk, Trade Credit, ECB

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