The willingness to invest in medium-sized companies has reached a low point. Only a good third of small and medium-sized companies plan to invest in new systems, replacements or rationalization in autumn 2023.
On the one hand, this is due to the difficult economic situation, but on the other hand, it is also because financing investments through borrowed capital has become significantly more expensive. The economic upheavals can only be explained in connection with the financing situation of medium-sized companies. This is about the earnings situation and the equity situation, but also about external financing and the loan from the bank.
Weak profits
The earnings situation for the companies has weakened further again. Only 17.8 percent of those surveyed by Creditreform economic research discussed increased income (previous year: 19.2 percent). In contrast, 32.9 percent of companies reported declining profits (previous year: 32.5 percent). A clearly negative balance in income, which is particularly pronounced in trading, where only a good 11 percent can report increases, but 43.1 percent state that their income has decreased. However, not only the balance in the current but also in the future earnings situation remains clearly in negative territory. It is minus 6.4 points – at least a significant improvement on the minus 18.5 points of the previous year. So earnings expectations are brightening a little.
In addition to profits, equity is one of the most important variables with regard to Quality financing a company. A polarization is emerging in equity ratios, which is typical in crisis situations. The significant cost increases in energy prices, but also in purchasing, are motivating some companies to increase their equity share in total assets. You want to be prepared for these and possible other challenges. The number of equity-rich companies with an equity ratio of over 30 percent has increased from 34.2 to 36.7 percent. On the other hand, the proportion of medium-sized companies that only have a meager equity ratio of less than 10 percent has also increased. While it was 27 percent in 2022, in 2023 it will be 28.3 percent that is insufficiently capitalized. Among the economic sectors, manufacturing stands out because only one in five companies has to demonstrate weak equity coverage (previous year: 30.3 percent). On the other hand, 45.3 percent of the manufacturing sector has an equity ratio of over 30 percent.
Credit is expensive
No medium-sized company will be able to survive without a bank loan. The level of equity and the amount of profit are ultimately also decisive for access to credit. However, in view of the economic bottlenecks and the sharp rise in interest rates, the number of companies that approached their bank for a loan has decreased significantly. While in 2021, when the survey on loan conditions was carried out for the last time, just under a third said they had taken out a loan, in 2023 only 21.3 percent answered that this was the case. Demand for bank loans is declining across medium-sized businesses. This is particularly evident in retail, where only 15.4 percent mentioned taking out loans and 84 percent said no.
What is the deadline? Short-term loans with a term of up to one year have shown significant increases. Two years ago only around 12 percent of SMEs took advantage of such terms – now it is 18 percent. Medium-term loans of up to five years were in greatest demand. In 2023, 30 percent of companies took out long-term loans of over five years – two years ago it was still 39 percent. This information corresponds to the statements about investments, which have decreased significantly. It may also be due to the hope that interest rates will fall again that medium-sized companies are not taking on longer-term loan commitments. However, the fact that larger and correspondingly more time-consuming investments have been postponed certainly also plays a role.
There is also less demand for loans from small and medium-sized companies because there have been increased requirements for applications. The loan request was only rejected outright in a few cases: only 8.3 percent of those surveyed reported this. Higher loan interest rates are clearly at the forefront of the problem areas. 96.6 percent of companies report this. Two years ago it was only 23 percent at a time when the ECB’s interest rate rally had not yet begun. But medium-sized companies are also citing further restrictions on awarding contracts. Almost half of the companies say that higher security was required. 16 percent were unable to obtain the loan in the desired amount and 7 percent did not receive the term actually expected.
Banks fear risks
The companies’ information on lending clearly reflects what the last “bank lending survey” – a regular survey of commercial banks by the ECB – reported for Germany. The banks state that they will have installed stricter lending guidelines for corporate loans in the third quarter of 2023. Credit conditions became more restrictive in corporate banking. “This was particularly evident in an expansion of the margins for riskier loans,” said the Bundesbank in this context. “Demand fell again in all three loan segments, although banks had expected demand to remain almost unchanged in the previous quarter.” Demand for credit is falling significantly. On the one hand, this is demand-driven because companies are investing less and fear further business declines, but on the other hand, it is also supply-driven because banks are becoming more cautious and are not as comfortable taking the risks when lending in view of the increasing number of insolvencies.
[Quellen: Creditreform Risikomanagement-Newsletter vom 10. November 2023 | Creditreform Wirtschaftsforschung | Deutsche Bundesbank]
[ Bildquelle Titelbild: Adobe Stock.com / iridescentstreet ]
2023-11-13 06:51:30
#Credit #crunch #sight
