Credit hurdles fall slightly for SMEs

Bank behavior remains restrictive: 25% of small and medium-sized enterprises are affected. The credit hurdle for large companies falls to 14.5%. Overall, demand for credit remains at a low level.

Following the record high in credit hurdles in the final quarter of 2022, there is a slight easing for small and medium-sized enterprises in Germany. According to the KfW-ifo credit hurdle rate, bank financing became somewhat easier to obtain again at the beginning of the year. The credit hurdle fell by 5.8 percentage points to 25.5% in the first quarter. However, this also means that a quarter of SMEs requesting bank financing still perceive the behavior of credit institutions as restrictive. This proportion is therefore still above the long-term average.

The easing of the energy crisis in recent months has led to a brightening of the risk situation, accompanied by improved access to credit

Dr. Fritzi Köhler-Geib, Chief Economist KfW.

There is good news for large companies in Germany in terms of access to credit: the credit hurdle has fallen by almost 10 percentage points to just 14.5%. Compared with SMEs, the easing in credit access is even more pronounced. However, there are considerable differences between the economic sectors.

For large manufacturing companies, banks' lending policies were eased significantly (-22 percentage points). By contrast, there was a significant tightening for firms in construction (+7.7 percentage points) and retail trade (+16.2 percentage points). This shows that banks' lending practices vary widely depending on the sector of the economy.

Sideways trend in loan discussions

The share of companies holding loan discussions with banks has moved sideways over the past two years. In the first quarter of 2023, 20.9% of small and medium-sized enterprises and 28.8% of large enterprises sought bank loans. However, loan demand in both size classes remains below the long-term average.

The need for liquidity caused by the crisis has decreased due to the easing on the energy markets and the easing of supply bottlenecks, which is restricting lending. Weak economic prospects and high borrowing costs are also slowing demand for investment finance. The double-digit growth in new lending business seen last year is likely to reverse soon.

The KfW study can be downloaded here.