- Banks will tighten their lending criteria
- Demand for credit will decrease and interest rates will stabilize
- Alternative financing channels and ESG will gain momentum
Zurich, 06 December 2022 - After a stormy 2022, German small and medium-sized enterprises (SMEs) are looking to 2023 with mixed feelings: The Swiss Fintech Teylor presents the most important trends in SME financing for the year ahead.
Banks will tighten their lending criteria
Banks tightened their lending criteria in Q3 2022, as an increase in the "KfW-ifo Kredithürde" shows: 28 percent of surveyed companies reported restrictive behavior by banks in loan negotiations - a jump of more than seven percentage points compared to the previous quarter. Banks hesitate to provide loans partly because risk managers expect increasing default risks by the end of 2022 and during 2023. Teylor founder and CEO Patrick Stäuble comments, "Given rising default risks, we do not expect a significant easing of lending criteria in Q4 2022 and early 2023."
Declining demand for credit
Not only will the supply of credit be constrained, but the demand for credit from SMEs could also fall in early 2023. In Q3 2022, new loan commitments to SMEs reached a record high. But these new loans were mainly working capital loans to finance inventories or to bridge short-term liquidity gaps. "Worsening financing conditions and a decline in investment activity due to a weak economy and the European energy crisis could reduce new loan demand in the next two quarters," says Patrick Stäuble.
Interest rates will plateau
The average interest rate on 5-year corporate loans rose to its highest level in more than 11 years in Q3 2022 and has quadrupled since 2019. Further rate hikes by the European Central Bank (ECB) could raise the cost of financing again in 2023. By the end of the year, the ECB's key interest rate is likely to stand at 2.5 percent, rising to 3.0 percent in spring 2023. "Recession risks limit the ECB's ability to hike rates," says Patrick Stäuble. "We do not expect a dramatic increase in financing costs in 2023."
Alternative financing channels gain momentum
Due to tighter bank lending, SMEs will seek new financing channels such as private debt funds. "Private debt funds offer more flexible conditions and lending criteria as well as attractive returns for professional investors," says Patrick Stäuble. "We have seen increasing interest in our loan fund this year from SMEs and investors. This trend will continue next year." Digital channels are also gaining momentum. According to Forrester Research, 15 percent of European banks would miss out on digital progress and be unable to compete in the future. In 2023, the gap between digital pioneers and their less agile competitors will become even more pronounced.
Lenders will implement ESG criteria
Political and social pressure on the financial industry to launch sustainable products is increasing. ESG criteria are also finding their way into the lending industry. Financial institutions are working on KPIs, scoring and pricing processes for sustainable loans in line with the EU taxonomy. Sustainability KPIs will also have a greater influence on credit conditions in the future. "For 2023, we expect more financial institutions to include ESG criteria in their lending processes," says Patrick Stäuble. "That's why we are now also providing an ESG module as part of our Software-as-a-Service offering, allowing banks to integrate sustainability criteria into their standard processes."
About Teylor AG
Teylor is the Swiss technology company that has developed the Teylor Platform, a suite of software modules that enable financial institutions to build, deliver and scale digital credit products. Teylor can customize its software modules to fit the requirements of any credit provider and credit product. Lenders can pick individual modules to complement and integrate with their existing legacy processes and technologies or develop entirely new digital processes from scratch. Banks throughout Europe use Teylor's software modules to innovate their lending processes, digitize their products and reduce the cost of lending. SMEs rely on Teylor for fast and convenient access to capital through Teylor's own private debt fund. The Zurich-based company was founded in 2018 by Patrick Stäuble.www.teylor.com