New lending to SMEs declined in a majority of countries in 2016, while alternative sources of finance became more widely used. This trend coincided with improvements in the operating environment for SMEs, as evidenced by a drop in bankruptcies and payment delays, and a brighter outlook for macro-economic indicators.
New lending to SMEs was down in 2016 in 15 out of 25 countries for which comparable data were available, despite more favourable credit conditions and low interest rates. The median interest rate charged to SMEs fell by 0.82 percentage points, in a context of loose monetary conditions, thereby continuing a downward trend which began in 2011. Survey data show that credit became more accessible in 2016, with notable exceptions including Brazil and the Russian Federation.
The use of financing instruments other than bank debt was generally on the increase in 2016. Leasing and hire purchases rose in a majority of countries in 2016, often by more than 10 percent compared to 2015. Factoring and invoice discounting volumes show a similar pattern. Venture capital investments, although well below pre-crisis levels in 2016 in many economies, increased in two-thirds of participating countries. The global private debt market grew by almost 15% between 2015 and 2016. Innovative sources of finance such as p2p lending, equity crowdfunding and invoice trading continued to grow very rapidly in 2016. While volumes remain modest in most participating countries, these financial instruments are becoming widely used in a few countries, most notably in China, the United Kingdom and the United States.
Demand-side issues, which are often related to weak investment dynamics, appear to explain the fall in new lending in some countries. In Italy, for example, the decline in new loans can be attributed to weak demand for credit, which reached a low in 2016. This picture is not uniform, however, and in other countries, factors such as weak macro-economic performance, risk aversion in the financial sector and tightening credit standards can contribute to explaining the fall in new lending. In Greece, for example, the 2016 decrease in new lending can be attributed to continued weaknesses in the financial sector and a slow recovery of the economy, rather than to falling demand for credit by SMEs.
Stock data on loan volumes show a different trend, with a median growth rate of 2.5% in 2016. The different trends in stock and flow data on SME credit may reflect recourse to long-term credits rather than short-term loans. This preference may be due to the desire to lock in low interest rates for a longer period, and/or the improved ability of SMEs to self-finance day-to-day operations.
These developments took place against the backdrop of improvements in the business environment. The median value for bankruptcies, for example, declined for the fourth consecutive year in 2016, by more than 7% year-on-year. Payment delays and non-performing loans generally remained at low levels compared to the period immediately after the financial crisis. In addition, economic growth prospects are relatively favourable, with the uptick in economic activity, trade and investment in 2017 expected to strengthen.
Governments are undertaking a range of initiatives to foster SME access to finance. Policies to support bank financing are widespread in many participating countries. Credit guarantee schemes in particular are central to governments’ ambitions to ease access to credit for SMEs. A rigorous evaluation is crucial to optimise these schemes and tailor them to evolving circumstances and needs of SMEs. Monitoring and evaluation practices vary widely, however, as the thematic chapter of this publication illustrates. In addition, bank loans are being support by a variety of initiatives aiming to mitigate risks, enable SMEs to collateralise a broader set of assets and improve credit information.
In response to a continued over-reliance by SMEs on bank credit, policy makers are increasingly designing complementary policies to support access to a wider range of finance instruments, especially equity. This two-pronged approach, which seeks to complement policies to ease SMEs’ access to credit with initiatives to support a more diversified financial offer for small businesses, is in line with the G20/OECD High-Level Principles on SME Financing. Crowdfunding activities in particular are the focus of specific measures in many countries, which seek to put in place an appropriate regulatory and supervisory framework.
Other emerging policy trends include the introduction of comprehensive policy reforms to address the needs of innovative start-ups, combining financial and non-financial support. Moreover, in several countries policies seek to address intra-national disparities in SMEs access to finance. Such initiatives include the introduction of local subsidiaries of national SME development funds or local development centres, and programmes to stimulate digitalisation and entrepreneurship in lagging regions.
Data gaps in SME access to finance persist, especially in regard to the availability of disaggregated data which capture the heterogeneity of the SME population. In addition, documentation of the use and availability of financial instruments other than bank debt by SMEs is often limited, and survey data not always internationally comparable. The OECD will continue efforts to improve the evidence base in these and other areas in order to support governments in monitoring trends in SME access to finance.