The moment of SMEs and the self-employed: alternative financing

SMEs and freelancers can obtain alternative financing by avoiding banks . It is true that the growth projection data shown in recent weeks by organizations such as the IMF (1.8% for 2015 and up to 2.0% for 2016) are encouraging for the asphyxiated Spanish economy and business network, but we must not fall into the moral hazard that this may entail.

Alternative financing

After six consecutive years of reduced sales volumes, delays and defaults - with an average of up to more than 80 days (both by the private and public sectors) -, forced reductions in staff and incentives, etc., Spanish companies, Or rather, SMEs and freelancers (I do not include companies such as GAMESA, ACCIONA or banks, which already began to make profits a while ago), have the opportunity to dream again of growing at rates prior to 2008.

That SMEs are the bulk, the muscle, of the Spanish economy, representing 64.8% of added value (a much higher number compared to other European countries such as the UK or France) and employing 74.9% of the Spanish labor force. it is a fact that seems to have been taken very seriously until now. Support and measures have been rather weak, both from the government and from the markets themselves.

All voices point out that the solution is exporting, that it is time for our small and medium-sized companies to “take the leap” and address those markets that could so much increase sales volumes (enhance economies of scale), diversify risks and eventually turn them into companies of significantly competitive size. Furthermore, the recent depreciation of the euro puts the icing on this cake, making it even more attractive.

However, SMEs, still with water up to their necks, are not receiving sufficient institutional support measures and lack access to the essential pillar of this process: financing. According to the European Central Bank, 17% of Spanish SMEs indicated access to finance as one of their biggest problems, compared to 9% or 7% in Germany or Austria.

The banking system continues without releasing a pledge. Although the European Central Bank continues to send aid packages to the Spanish banking system at minimal interest, the granting of loans to SMEs and the self-employed is still totally insufficient. Banks' balance sheets are still full of high leverage, which restricts the increase in their financing

via deposits, which augurs a still slow and gradual evolution of credit. The truth is that they prefer to focus on the risk-free (and quite profitable) business of buying Government Bonds.

On the other hand, banking integration in the European Union has not yet taken place, and therefore foreign financing still has a difficult place in our system.

What options do SMEs and the self-employed in this country have to not miss this opportunity?

The solution is through alternative financing. Two models foresee a change of scene.

On the one hand, the Spanish economy is dominated by bank financing where, unlike countries such as the United States or the United Kingdom, the issuance of private debt is not a very accessible resource for small and medium-sized companies (even for some large ones) . This must change.

Using the right tools to attract investment through this channel is not easy, but the first steps have already been taken with the creation of regulated markets such as the MAB (Alternative Stock Market) and the MARF (Alternative Fixed Income Market). Although the results achieved so far have not been as expected, the great attractiveness and profitability of many Spanish SMEs cannot be doubted. For the near future, the Government's Corporate Finance Promotion Bill promises to accelerate this process.

The second model is defined by the need for pressure in the markets for banks. Competitiveness means increased services, better prices and more flexibility.

New business models not seen so far in Spain, more common in countries such as the UK and the USA, such as crowfunding or private equity companies that offer new financing channels taking advantage of the “marketplace” (the internet market) as a premium tool . Flexibility, speed, security comparable to that of banks and competitive interest rates are the desirable "menus" offered by young companies such as Spotcap , which, with still very little competition in the market, has already financed one million euros to SMEs and Spanish self-employed.

The 2008 crisis brought with it more than one lesson. One of the most important was the excessive dependence on Spain in the banking sector. Opening the way to new sources of financing, ending a monopolistic market and once and for all giving serious support to medium and small companies - and consequently a more than necessary boost to employment - deserves more than one consideration.

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