According to the conclusions of a recent study by the National Bank of Belgium (NBB), the allocation of bank credits excessively benefits less performing companies to the detriment of the most productive firms, despite the latter’s significance in the national economy.
Although companies in the new economy are often more efficient and productive than more traditional businesses. They encounter a significant challenge: obtaining financing.
The NBB study examined the statistics and data regarding the granting of bank loans in 2015, from which several findings can be drawn.
Young companies struggling compared to more mature firms
Initially, it appears that the age of the company directly affects its likelihood of obtaining a personal loan. The oldest established companies are those that have received most of the bank credits. Young companies often struggle to secure the financing needed for their development.
Like a rite of passage, it seems that obtaining the first personal loan poses the greatest difficulties. The study shows that, compared to companies that have never obtained a bank loan, those that have already secured at least one personal loan are twice as likely to receive a new one or to get an additional credit line on an existing loan.
Banks tend to favor physical capital
The study by C. Duprez and Ch. Piette highlights that tangible investments are more favorable to banks because they see them as a potential guarantee. However, such a vision may seem outdated, as economic data shows that the most successful companies in the new economy are often those where intangible capital plays a significant role.
What correlation between performance and intangible capital?
On the one hand, a company’s performance is estimated based on its productivity. A company’s productivity is calculated based on its added value compared to other companies in the sector.
On the other hand, the most successful companies stand out in terms of intangible capital since they prefer to invest in research and development expenses, patents, licenses, and software rather than in physical capital.
However, there is a clear causal link between a company’s intangible capital and its economic performance. Indeed, the more a company invests in research, for example, the more it can develop new products and, therefore, conquer new markets. Surprisingly, such an argument may not be enough to convince banks.
A logical reluctance from banks
Banks should not be blamed for their cautiousness in granting personal loans to actors in the new economy. Their risk aversion is primarily explained by prudential regulation. This requires credit institutions to take numerous precautions, particularly in terms of guarantees.
However, the inability of some young companies, although very efficient, to access optimal bank financing conditions pushes them to turn to alternative financing sources such as venture capital or bond loans.
