Difficulties for SME's

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Despite the recession being declared over in many countries, small and medium sized businesses in the eurozone are still finding it difficult to obtain finance.

A European Central Bank (ECB) survey of small and medium sized businesses (SMEs) conducted in collaboration with the European Commission, between 19 November and 18 December 2009, found that rejections of bank loan applications rose significantly in the second half of last year compared with the previous six months.

"In the second half of 2009, around one-third of SMEs reported an increase in the level of interest rates charged on bank loans," the Frankfurt-based ECB said in a report. "In addition, SMEs reported on balance a deterioration in the terms and conditions other than interest rates in the second half of 2009."

The report adds to the evidence that a weakened banking sector is constraining economic growth, with the effects of the global financial crisis still feeding through into individual lending decisions. The larger role played by bank loans in the region, especially forSMEs that cannot raise funds from capital markets, makes the eurozone more vulnerable to the US to a loan drought, the Financial Times reports.

Economic recovery

The results coincided with further signs that the economic recovery is losing momentum, with Germany's economy failing to grow in the final three months of last year.

"Although we have passed through the deepest valleys of the depression, worries about the labour market, budget deficits and the euro have not lessened," said Wolfgang Franz,ZEW economic institutes' president. Last week, gross domestic product data showed the eurozone economy expanded just 0.1 percent in the fourth quarter of last year, with Germany stagnating. Looking ahead, German economic activity could "move sideways, with only minor ups and downs", Mr. Franz added.

The ECB launched its survey of financing conditions facing SMEs last September. After the first survey, Jean-Claude Trichet, the Bank's president, seized on results showing that in the first half of last year, 77 percent of SMEs had received in full or part the bank loans they had sought, as a sign that credit was continuing to flow into the real economy. But in the final six months of last year, that figure deteriorated to 75 percent. Moreover, the share of SMEs saying bank loans had been rejected rose from 12 percent to 18 percent.

Loan applications

Among the large eurozone countries, the rejection rate for loan applications rose from six percent to 15 percent in Germany, and from nine percent to 18 percent in Italy. The rate was highest in Spain, where it rose from 20 percent to 25 percent. In France the rejection rate fell from 12 percent to seven percent.

Around 20 percent of eurozone SMEs expected access to bank loans to deteriorate in the first six months of 2010, compared with only 14 percent expecting an improvement.

"At the time of the survey, around half of the SMEs expected their access to internal and external financing sources to remain unchanged in the first half of 2010," the ECB said in the report. "The percentage of SMEs expecting a deterioration in their access to bank loans and trade credit in the first half of 2010 continued to be somewhat larger than the percentage of SMEs expecting an improvement."

Jodie Humphries

Jodie Humphries graduated from Bath Spa University with a BA Hons in Creative Writing in 2008. She has worked for GDS Publishing for the digital group since July 2009. She has previous experience with writing for the web, running her own website since April 2007.

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