New perspectives in Dutch SME financing

Doing business today entails far more risks than in the past. This has consequences for the financing of small and medium-sized businesses, but there are also new options for financing. Rabobank would like to contribute to this and welcomes the approach advocated by the Dutch government.

That is the message from Rien Nagel, member of the Executive Board of Rabobank, in a letter to the Dutch ministers Dijsselbloem (Finance) and Kamp (Economic Affairs), in which he responded to the government policy announced for SMEs. The Lower House of the Dutch Parliament will soon be discussing the subject of lending to SMEs with the ministers. ‘Making each other stronger. Rabobank also applies that motto in the SME sector,’ says Nagel, affirming that Rabobank would welcome consultations with the government on the contribution that Rabobank can provide.

Elements that are important for Rabobank include:

  • Small and medium-sized businesses need more risk-bearing capital but have to accept a higher price for this
  • Better information must be provided to businesses about the financing options available
  • Rabobank is open to new forms of financing, but these will require an appropriate supervisory framework
  • Loans are available for every good business plan, including for smaller businesses
  • Greater standardisation of information on SMEs
  • Qredits only for vulnerable businesses with a substantial chance of success
  • Also good for SMEs: promote exports, innovation and entrepreneurship

1 – Small and medium-sized businesses need more risk-bearing capital but have to accept a higher price for this

Doing business today is more challenging and involves more risks than in the past, owing to fast and far-reaching changes in the economy and society in general. More than ever, businesses need risk-bearing capital to survive, even when faced with headwinds, and to adapt to changing circumstances. Risk-bearing capital for businesses can be provided by entrepreneurs themselves or by third parties. If such capital is provided by pension funds and private equity parties, for instance, it will be more expensive than financing provided by banks. Businesses will accordingly have to accommodate a higher cost of capital and sometimes also demands from providers of risk-bearing capital to be given a say.

2 – Better information must be provided to businesses about the financing options available

Businesses need time to adapt their balance sheet to the changed circumstances. They also need a proper understanding of the various solutions on offer in order to choose the right ones. In some Dutch regions, there are more than 200 private and government schemes available for businesses. Even if there may be more than enough possible solutions, businesses can no longer see the wood for the trees.

Information about the various forms of financing and the available government schemes should be made available more centrally and more transparently. Rabobank sees a role for itself in contributing to this, by means of websites and customer meetings. Rabobank also sees it as its job to bring businesses together to enable them to share their experiences.

If businesses present specific plans, Rabobank sees it as its task not just to discuss financing by a bank but, if desired, also to support businesses in seeking other forms of financing, including risk-bearing financing. Actual practice has shown that if a financing requirement cannot be financed in full by the bank, it may be possible to do so by combining bank loans with alternative financing.

‘Making each other stronger. Rabobank also applies that motto in the SME sector.'

Rien Nagel, member of the Executive Board Rabobank

3 – Rabobank is open to new forms of financing, but these will require an appropriate supervisory framework

Actual practice has therefore shown that businesses are able to put in place a robust financing structure by using a combination of various forms and providers of financing. Rabobank therefore welcomes the Dutch government’s intention to encourage other forms and providers of financing, such as crowd funding and private equity.

At the same time, it is imperative to safeguard the confidence placed by businesses and private investors in those financing structures. Rabobank therefore emphasises the importance of supervision of those providers, in line with the size and complexity of the financing structures concerned.

4 - Loans are available for every good business plan, including for smaller businesses

Customers, business and retail, are the basis of Rabobank as a cooperative bank. These are large businesses as well as small and medium-sized businesses that are customers and often also members of Rabobank. Rabobank does not discriminate in terms of the size or revenue of a business. One fifth of approved Rabobank loans to Dutch businesses relates to loans of less than EUR 50,000.

Businesses with a good business plan have access to bank loans, even in times of economic headwinds. Rabobank stands to benefit from a healthy loan portfolio, with customers who are able to develop their business and meet their interest and repayment obligations. This is also a responsibility that the bank has in respect of savers and other investors.

At the same time, the challenge for Rabobank is to organise its lending to be as efficient as possible. That is why Rabobank is investing in online propositions for lending to businesses to a greater extent. This also ties in with customers’ need to operate when and where it is convenient for them.

5 – Greater standardisation of information on SMEs

SMEs tend to have a higher risk profile than larger businesses. That is due to their strong dependence on the entrepreneur him- or herself and their dependence on smaller sales markets. Moreover, it is often easier for larger businesses to raise financing from other sources because they are able to present more management information to potential investors.

Rabobank believes it is important for information to be available for SMEs as well that is capable of being compared, exchanged and interpreted, on the basis of standardisation and automation. Rabobank has therefore been involved in the Dutch Standard Business Reporting Programme since 2008 and also supports the development of its successor, SBR+. Rabobank does not believe, however, that this should be allowed to become a kind of public data register. In Rabobank’s view, the business is the owner of the data in this programme at all times and should decide to which parties it will provide information.

6 – Qredits only for vulnerable businesses with a substantial chance of success

Qredits was established in 2008 as a safety net behind the Dutch banks to support vulnerable businesses. Rabobank is a co-financier of Qredits and 80 Rabobank employees in the Netherlands are active as Qredits coaches at one or more businesses. The aim is to give these businesses a chance to get off the ground and to turn to a commercial party for possible follow-up financing.

In Rabobank’s opinion, Qredits should continue to focus on lending to businesses with an acceptable risk profile and maximum chances of success, as the risks of Qredits are borne largely by the government.

Qredits currently applies a credit ceiling of EUR 150,000, which will be raised to EUR 250,000. Rabobank believes that further increases in the future are not desirable, and that management at Qredits must be improved, since the risks will increase as the amounts concerned rise.

7 – Also good for SMEs: promote exports, innovation and entrepreneurship

The Dutch overnment is investing in a long-term commitment to promoting exports, innovation and entrepreneurship, creating opportunities for start-ups and improving knowledge-sharing between business, knowledge institutions and educational institutions. While these initiatives are not specifically aimed at small and medium-sized businesses, Rabobank is confident that the latter will also benefit from these government initiatives.

Read the position paper ‘Action plan for SME access to financing’ at the Principles page.

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