Alternative finance for SMEs and Mid-Market Companies

As the European economy turns a corner, it is imperative that smaller and mid-market companies receive the funding they require to help drive the economic recovery. The current reliance of these companies on bank finance has been documented in the report we published last year (SME Financing: Impact of regulation and the Eurozone crisis – November 2012). In the current constrained environment for bank lending, it is increasingly important for alternative financing solutions to come to the fore to complement the banking system, promote financial stability and diversify the sources of business funding for smaller and mid-market companies.

This report reviews major current developments and trends in alternative financing and assesses their
potential for substantial real economy impact to drive economic growth in Europe. It identifies a number
of promising opportunities in the alternative financing field such as the development of private placement
markets, the re-opening of SME loan securitisation markets as a mechanism to increase – especially longer term – funding for smaller and mid-market companies, the establishment of an institutional market in untranched whole loan conduits, the encouragement of credit rating services for mid-market companies
and the provision of a credit information exchange for SMEs and mid-market companies.

Closing the funding gap for smaller and mid-market companies will require the establishment of a
regulatory level playing field for alternative financing recognising its value as a complement to bank
lending. This in turn requires the normalisation of banking markets including addressing the impact of
provision of cheap liquidity by central banks.

We are grateful to those firms, regulators and policymakers who generously gave their time and
contributions and to our colleagues at Ares & Co for producing this report which provides real and valuable insights into alternative financing of SMEs and mid-market companies. These insights can provide the basis for further work to make concrete these promising developments in order to drive economic growth in Europe.

There is more to be done to turn the emerging trends in alternative financing into actions that can be
gripped by the firms and open up the market. TheCityUK looks forward and working with our members
and policymakers to pioneer a path to real market change. Business needs more depth in its financing
options and our sector can be the catalyst to spread economic growth and create sustainable jobs
across the UK by turning these research insights into market opportunities.