30-Aug-14
European companies are still struggling to get credit and their woes hit growth. Despite an alphabet soup, the program aims to stimulate economic growth throughout the euro area bank lending to companies in the region fell by € 561bn since 2009, according to Royal Bank of Scotland research. In the UK, loans to small and medium enterprises under a program specifically for getting money they dropped £ 435 m in the second quarter, the decline in the first three months of this year after 700 million pounds.
As banks after the financial crisis cut, Europe and the UK business loans have emerged, partly because they still rely more on bank loans than their American counterparts. In the United States, nearly three-quarters of corporate funds from investors through the capital markets. Medium-sized companies with a high yield bonds issued regularly. European banks still account for nearly two-thirds of corporate finance and SMEs have been skittish about the tapping capital markets.
This week, Standard & Poor's announced plans to cheaper, less detailed "ratings lightweight" products; they say they can help easier to sell debt for SMEs in Europe. In the "mid-market evaluation" is a streamlined credit report can be shared in a private fund-raising and investors. For small businesses of less than € 10 billion year’s turnover not exceeding € 500 m outstanding credit, lower product costs, and requires less management time.
In theory, a more simple rating system for small companies is a great idea. Bankers have long pointed out that lending to SMEs need a lot of analysis, and absorb a lot of money, especially in the relatively small amount of mortgage payment. After under pressure to reduce their financial crisis balance sheets, many banks have become more selective of their loans in this area. The peer lending platform to pick some slack, many medium-sized enterprise loans to the direct use of the capital markets. But their credibility convincing investors may be very difficult, especially in Europe. The company wants a credit rating must pay the privilege, the cost can be prohibitive for a small debt agreements.
However, there are pitfalls. 2008 financial crisis has shown that not all credit ratings are worth listening to. Many AAA-rated subprime mortgage securities turned out to be almost worthless. Since then all of the credit rating agencies have tightened their methods, and adhere to Standard & Poor's rating (relative to the securitization) has been skeptical. "If the market does not take our advice seriously, we do not have a business," Robert Rivero, who does marketing & P said.
There are access problems. The assessment is private - only for investors who are considering whether to participate in a transaction meaning. S & P said it plans to monitor who has access to the report, in order to ensure that the company does not share some of the potential buyers, rather than the other information. Either way, this means that investors will know more about some of the company compared to the rest of us, but it has been a fact of life, because the bond market has been going.
In an ideal world, someone would want ways to simplify and automate the process of small business loans, the more FICO credit score mortgage loans. But in the meantime Europe and the UK really need to be more market-oriented financing to replace the withdrawal of the bank. Standard & Poor's assessment seems to be moving in the right direction step, if they can prove to be reliable, their
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