02 November 2020

AIMA: Financing European Business

Non-bank lending is key to Europe’s post-COVID recovery for SMEs; Non-bank lenders provide $242bn of finance to European businesses; Reforming ELTIF, boosting non-bank lending could see $1.5tn invested by 2030; Reducing barriers to non-bank lenders is key to development of European capital markets

The Alternative Credit Council (ACC) has published a roadmap to reform the European Long-Term Investment Fund (ELTIF) and recommends additional policies to boost non-bank lending in Europe. 

The European market for non-bank lending has grown 20% year on year during the last decade and now stands at $242bn[1].  However, reforms are needed to maintain this growth rate as Europe still has among the highest barriers to non-bank lending in the world. If successful, these reforms could see lenders invest $1.5tn in more than 25,000 European companies by 2030.

European businesses often lack access to the capital needed to finance innovation and growth, despite the strong bank presence in many markets. It is estimated that European companies currently face a finance gap of at least €400bn.[2]

Increasing the flow of finance from capital markets will increase the availability of capital to SMEs at a time when they need it most.  SMEs and mid-market companies underserved by traditional lenders stand to benefit most from the growth of non-bank lending in Europe.   

Maintaining the stability of the AIFMD framework while reforming the ELTIF regime will be central to realising this potential.  An enhanced ELTIF regime will support greater cross-border lending in Europe and unlock retail capital as a new source of finance for businesses. 

Reducing additional barriers to non-bank lenders is necessary for the development of European capital markets.  The roadmap includes key recommendations to address long term challenges in the direct lending and secondary loan markets.  Implementing these reforms will stimulate the European non-bank lending market and support a sustainable recovery across the continent.

Jiří Krόl, Global Head of the Alternative Credit Council commented: “The AIFMD framework acts as a superstructure for all types of alternative investments, including loans to businesses. This framework needs to remain stable and not be disrupted by the upcoming review. We strongly support the European Commission’s initiative to amend the ELTIF framework, which exists solely to provide much-needed finance to smaller and mid-sized companies who are unable to access public markets or bank finance . Now more than ever we cannot ignore the potential that non-bank lending has to support businesses and livelihoods. We hope that our report summarises the key steps that should be urgently taken to ensure businesses can access the capital they need to thrive in a post-COVID economic recovery.”

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