The credit requests of SMEs – market practices and regulations

Evaluation of Market Practices and Policies on SME Rating

A study confirms that the smaller a firm, the larger the likelihood that its credit application might be declined by a financial institution. In particular, smaller companies are reluctant to obtain feedback from banks on their declined credit applications even if they have the right to ask for it. To help them eventually to obtain loans successfully, smaller firms need to receive and act on the feedback about areas in which their loan application was lacking. Research results indicate that clear benefits would derive for SMEs from obtaining such feedback: about half of SME respondents to the survey found the feedback by banks received useful with regard to obtaining future funding. Therefore the evaluation recommends reviving the dialogue between banks and SMEs, by increasing transparency and making efforts to improve financial literacy in smaller companies. As small and medium sized enterprises (SMEs) are an engine of growth in the EU economy, access to credit is crucial both to their survival and that of our economy.