Rabobank: growing diversity of financing landscape

• Increase in all forms of lending in 2015. • Diversity of financing varieties creates opportunities and challenges. • Role of SME funds is growing. • Low interest rate contributes to growing interest among private individuals and professional investors in providing funding to businesses.

Bank financing is still the most popular form of loan capital among Dutch SMEs. At the end of 2015, lending to Dutch businesses by the major banks totalled EUR 285 billion, of which EUR 130 billion were loans to SMEs. The diversity of types of financing has grown in recent years, however. Both leasing and factoring as well as crowdfunding and credit unions grew strongly in 2015. And SME funds are also growing in importance. This is clear from the report ‘Growing diversity of the financing landscape’ (‘Diversiteit financieringslandschap neemt toe’) published today by Rabobank economists. The increase in financing alternatives means that businesses have more options.
Growth of investments

The Netherlands has come out of the recession. Rabobank expects the economy to grow by 2% both this year and next, as it did in 2015. Business investments increased by 5.4% in 2015. Overall, businesses expect investments to grow on balance, but large businesses (more than 100 employees) have a more optimistic outlook than SMEs. The leading role of large businesses in this development is also reflected in the fact that banks have seen an increase in demand for financing among large businesses since 2014, whereas it has only grown among SMEs since the end of 2015. Rabobank economist Leontine Treur: ‘Growth in investments does not necessarily translate immediately into increased demand for financing. Businesses may also finance the initial phase of increased investment themselves or by raising private equity. If the growth in business investment continues, businesses can be expected to seek more credit to finance further growth in investments.’
Strong growth in traditional and new financing alternatives
With EUR 285 billion in loans outstanding, the major banks are the main source of financing for Dutch business. 2015 saw strong growth of alternative sources of financing, both the traditional alternatives (leasing and factoring) and the new forms of financing such as crowdfunding and credit unions. In 2015, EUR 128 million was raised by crowdfunding, of which almost EUR 110 million by businesses; that is twice as much as in 2014. The use of crowdfunding as a source of financing was particularly widespread in the restaurant, catering and hotel sector and in the real estate sector. For businesses in the restaurant, hotel and catering sector, crowdfunding also offers – besides financing – opportunities to establish long-term relationships with future customers.
Qredits achieved growth both in lending through microcredits (up to EUR 50,000) and in SME loans (up to EUR 250,000) in 2015, to a total of EUR 41 million. The Netherlands now has several dozens of credit unions, some of which are still in the process of being established. In 2015, credit unions lent a total of EUR 3-4 million to businesses.  
Greater role for SME funds
The low interest on savings and on safe investments such as government bonds is prompting private individuals and institutional investors to seek alternatives with better returns. Institutional investors require sufficient scale and therefore prefer investing via a fund. New funds such as the SME Impetus Fund (MKB Impulsfonds), the Business Loans Fund (Bedrijfsleningenfonds - BLF) and the Subordinated Loans Fund (Achtergesteldleningenfonds - ALF) cater to that need.
Jungle or ‘one stop shop’
The growing diversity of forms and sources of financing means that businesses have a wealth of choice. The drawback of the wide range of financing options is that it is becoming increasingly difficult for businesses to properly assess all of them. Banks are therefore increasingly cooperating with other parties to offer business customers a wide range of financial services as a ‘one stop shop’.
For instance, Rabobank recently partnered with two crowdfunding platforms and in special meetings, the bank helps bring businesses with a need for financing into contact with lenders. For some plans, suitable financing consists of a smart financing mix, in which a bank loan is supplemented by additional financing from external lenders. 
The report Growing diversity of the financing landscape can be found at: www.rabobank.com/economics

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